ETFs are attracting a growing number of investors. Discover what an ETF actually is, how it works, its advantages, its risks, and why it has become an essential tool for long-term investing.
For a long time, finance remained a technical world, reserved for those who knew its codes. ETFs changed that by making investing far more accessible, but accessible does not necessarily mean understood. Understanding an ETF is not just about knowing a definition: it means understanding a tool that can profoundly change the way you invest, save and build your financial future.
At AdvisorOne Academy, we believe that financial education is not about following trends, but about understanding what you are doing before investing your money.
What exactly is an ETF?
ETF stands for exchange-traded fund. So what is an ETF in practice? It is a basket of investments grouped into a single financial product, which you buy and sell on the stock exchange just like a share.
When you buy an ETF, you are not investing in a single company, but in dozens, sometimes hundreds or even thousands of companies at the same time.
Example: an S&P 500 ETF
An ETF tracking the S&P 500 automatically gives you exposure to the 500 largest US companies, including names like:
- Apple
- Microsoft
- Johnson & Johnson
- Coca-Cola
All of this through a single purchase.
This is what is known as diversification: not putting all your eggs in one basket.
If one company goes through a rough patch, the impact on the whole investment stays limited, since that company only represents a small slice of it.
Why do ETFs appeal to so many investors?
ETFs have grown spectacularly over the past twenty years for a simple reason: they make investing more accessible, simpler and often cheaper.
At the end of July 2026, more than USD 23 trillion was invested in ETFs worldwide, a record according to the specialist firm ETFGI.
Diversification
Before ETFs existed, building a genuinely diversified portfolio required a lot of capital, time and expertise.
Today, with just a few dozen francs, a global ETF can give you exposure to more than a thousand companies spread across several countries: around 1,250 for an ETF that tracks the MSCI World, the best-known global index.
This diversification reduces the risk tied to any single company or sector.
Much lower fees
Most ETFs work on a principle called passive management.
Unlike traditional funds that try to "beat the market", they simply track a stock market index.
This requires far less human intervention, which means much lower fees.
According to the European Securities and Markets Authority (ESMA), equity index ETFs in the European Union cost on average about 0.2% a year in 2024, compared with about 1.2% for actively managed equity funds.
Over several decades, this difference adds up. Take CHF 10,000 invested for 30 years with a hypothetical return of 5% a year: it would grow to about CHF 40,800 with fees of 0.2%, compared with about CHF 30,600 with fees of 1.2%. That is a gap of more than CHF 10,000, purely because of fees. Real returns vary from year to year and can be negative.
How does an ETF actually work?
Most ETFs track a stock market index. An index is simply a list of companies used as a benchmark to measure how a financial market is performing.
A few well-known examples:
- The S&P 500 → major US companies
- The CAC 40 → major French companies
- The SMI → the large Swiss companies
- The MSCI World → international companies from developed countries
When the index rises, the ETF rises.
When the index falls, the ETF falls.
It works mechanically. An ETF does not try to do better than its index: it aims to track it as closely as possible, after fees.
This is what is known as passive investing.
Distributing or accumulating ETF?
The companies held in an ETF often pay dividends, a share of their profits. A distributing ETF passes them on to you regularly, paid into your account. An accumulating ETF automatically reinvests them in the fund.
Neither form is better in itself. The first suits someone who wants an income, the second someone who wants their capital to grow without having to think about it. The ETF's name often shows which it is, with the letters "Dist" or "Acc".
Are ETFs a good fit for beginners?
In many cases, yes. ETFs are often cited as a suitable first investment, provided you understand what they contain and how long you plan to hold them.
ETFs let you build a diversified portfolio without having to individually analyze dozens of companies.
This is also why they are often used in long-term investment strategies, especially when looking to build solid foundations and knowwhere to start investing when you are a beginner.
Investing regularly with the DCA method
Many investors choose to invest regularly in ETFs using an approach called DCA (Dollar-Cost Averaging, or scheduled investing).
The idea is simple:
- Invest a fixed amount,
- at regular intervals,
- regardless of market swings.
This method helps you avoid waiting for the "perfect moment" to invest.
When markets decline, the same amount allows you to buy more shares, meaning fractions of the ETF.
When markets recover, those shares gain value.
Over the long run, this approach smooths out the average purchase price while building real discipline.
This method does not guarantee a profit: if markets decline for a long time, the shares already purchased also lose value, and you need to be able to wait.
Do ETFs come with risks?
Yes. And this is an essential point. A diversified ETF is not a risk-free investment. Diversification protects against the risk associated with a single company, but it does not protect against global financial market crises.
Markets can fall too
During the 2008 financial crisis, most global markets fell sharply.
In 2022, the S&P 500 lost about 18% over the year, according to S&P Dow Jones Indices.
An ETF tracking that index fell by roughly the same amount.
For an investor in Switzerland, there is also currency risk to consider. An S&P 500 ETF is invested in dollars: if the dollar falls against the franc, the value of the investment in Swiss francs falls too, even if the index does not move.
Understanding this before investing is essential.
At AdvisorOne Academy, we often point out that an ETF is not an investment strategy in itself. It is a tool. The real question is always why you are investing, over what time horizon, and with what level of risk you are comfortable.
ETFs: a powerful tool,
but not a magic one
ETFs have profoundly changed investing. What was once reserved for large investors is now within reach of almost anyone, with just a few dozen francs.
They have made the following accessible to everyone:
- diversification,
- lower fees,
- long-term investing,
- exposure to global markets with modest amounts.
But their popularity has also created a dangerous illusion: the belief that an ETF is automatically simple, profitable and risk-free.
That shortcut is wrong.
ETFs are tools. How useful they are depends entirely on how they are used.
Conclusion
The best decision a beginner investor can make is not to search for "the best ETF". It is first to understand what you are actually investing in.
A good financial decision is not necessarily the most profitable one. Above all, it is a decision that is understood, deliberate and consistent with your life goals.
To take a first step today, pick an ETF you have heard of and look up its factsheet: which index does it track, how many companies does it hold and what are its annual fees?
These three answers are already enough to know what you are buying.
To get started: the Academy's Foundations programme, free, helps you lay the groundwork before you invest.
To go further: the Academy's one-on-one support helps you address specific financial questions and structure important decisions with clarity.
FAQ
Can you lose money with an ETF?
Yes. An ETF tracks financial markets. If the markets decline, the ETF also declines. Diversification limits the risk associated with a single company, but not that of a general crisis.
That’s why it’s better to invest only money that you won’t need in the short term and to think in terms of a multi-year horizon.
Which ETF should you choose to get started?
Il n’existe pas d’ETF idéal pour tout le monde. Les ETF larges et diversifiés, comme certains ETF monde ou S&P 500, sont souvent utilisés par les investisseurs débutants pour leur simplicité et leur diversification. Avant de choisir, regardez l’indice suivi, les frais annuels, la devise et ce que l’ETF fait des dividendes : il les distribue ou les réinvestit.
What's the difference between a stock and an ETF?
A stock represents a single company. An ETF groups several companies into a single financial product. With a stock, your investment depends entirely on that company. With an ETF, it is spread across dozens or even thousands of companies.
Both are purchased in the same way, on the stock exchange, according to the mechanism ofthe listing of a stock.
Can you invest in ETFs for the long term?
Yes. ETFs are often used in progressive and long-term investment strategies due to their low fees and diversification. Over time, reduced fees leave more returns for the investor, and time allows gains to generate further gains. This also explains why starting early matters more than starting with a lot.
⚠️ Important Warning ⚠️
The information presented in this article is provided for informational and educational purposes only. It does not constitute personalized advice, investment recommendations, or an offer or solicitation to buy or sell any financial products.
Any investment decision should be made only after a thorough review of your personal situation, objectives, and risk profile, and may require guidance from a licensed financial advisor.
Past performance does not guarantee future results. All investments carry risk, including the risk of capital loss.