Exchange-Traded-Fund (ETF) is a game changer in the investment world. It creates a movement in the right direction where everyone can invest passively in index funds or any market sectors around the world in a very low-cost manner.

Without ETF, people who would like to invest in equities to participate in the economic growth would either invest directly in individual stocks or through mutual-funds.

Individual stock picking is not a trivial skill that anyone could learn easily. It requires tremendous time and effort. It is not everyone’s game. For average Joe, buying mutual funds is the only way to participate in the stock market.

Although mutual funds save people time in managing the portfolio, they charge as high as 5% commission per transaction. That is a big drag to the performance of any mutual funds. Let say a fund returns 10%, the investor only gets 5% after commission. Worse, most mutual funds don’t beat the performance of the passive index funds where the ETFs are tracking.

With ETF, people can keep almost all of the market returns since its expense ratio is usually below 1%. Let say an exchange-traded-fund returns 10%, the investor keeps 9% after expense. That is a huge advantage compare to buying mutual fund.

ETF is diversified in a way that it usually holds a bucket of companies at a time. This reduces the non-systemic risk of buying individual stocks.

ETF provides investors access to any asset classes that are categorised by value, growth, commodity, bond, geography (by country), sector, etc around the world. People can, thus, focus on allocating assets and buying the world market through ETFs.

According to research, 90% of the investment returns are coming from asset allocations instead of market timing.

Most of the ETFs are weighted according to market cap. This means that companies with the highest valuation get the biggest shares in the portfolio. There is also fundamentally weighted ETFs that meet the need of value investors where the most undervalued companies constitute the largest components of the index.

In a way, the fundamentally weighted ETFs have strategy automation built-in where the valuation is inversely proportional to allocation: the most undervalued companies are allocated the most funds. The automated rebalancing actually reduces risk and increases return.

With all the good things, ETFs also come with traps: leveraged ETFs and inverse ETFs. If you don’t understand how they work, stay away from them.

ETFs that could double your money in 5 years

Code	Name	CAGR (5 Years)	AUM	No. of Holdings	Expense Ratio	PE	PTBV	Distribution Yield	Index Weighting Methodology	Inception Date	Brand
RHS	Guggenheim S&P 500 Equal Weight Consumer Staples ETF	17.39%	$757.02 M	34	0.40%	27.13	5.45	1.60%	Equal	11/01/06	Guggenheim
PSCC	PowerShares S&P SmallCap Consumer Staples Portfolio	18.01%	$124.15 M	14	0.29%	21.83	2.13	1.25%	Market Cap	04/07/10	PowerShares
IYC	iShares U.S. Consumer Services ETF	17.93%	$885.26 M	173	0.45%	23.07	5.01	1.00%	Market Cap	06/12/00	iShares
FXG	First Trust Consumer Staples AlphaDEX Fund	16.23%	$2.47 B	38	0.62%	25.88	3.76	1.61%	Tiered	05/08/07	First Trust
VCR	Vanguard Consumer Discretionary Index Fund	17.63%	$1.93 B	373	0.10%	23.81	4.72	1.96%	Market Cap	01/26/04	Vanguard
PSL	PowerShares DWA Consumer Staples Momentum Portfolio	14.70%	$269.79 M	30	0.60%	27.23	5.41	0.91%	Momentum	10/12/06	PowerShares
VDC	Vanguard Consumer Staples Index Fund	15.10%	$3.51 B	99	0.10%	25.72	5.07	3.35%	Market Cap	01/26/04	Vanguard
SPLV	Powershares S&P 500 Low Volatility Portfolio	14.54%	$7.64 B	99	0.25%	23.98	3.40	2.01%	Volatility	05/05/11	PowerShares
DVY	iShares Select Dividend ETF	14.92%	$16.27 B	94	0.39%	28.06	2.45	3.08%	Dividend	11/03/03	iShares
KBWP	PowerShares KBW Property & Casualty Insurance Portfolio	20.92%	$68.91 M	23	0.35%	14.63	1.31	1.61%	Tiered	12/02/10	PowerShares
ITA	iShares U.S. Aerospace & Defense ETF	19.16%	$879.2 M	36	0.44%	33.70	3.78	0.85%	Market Cap	05/01/06	iShares
IHI	iShares U.S. Medical Devices ETF	19.34%	$1.43 B	47	0.44%	36.87	3.89	1.04%	Market Cap	05/01/06	iShares
SPHD	PowerShares S&P 500 High Dividend Low Volatility Portfolio	--	$2.68 B	50	0.30%	20.05	2.45	3.33%	Dividend	10/18/12	PowerShares
DON	WisdomTree MidCap Dividend Fund	15.80%	$2.04 B	969	0.38%	41.07	2.64	2.47%	Dividend	06/16/06	WisdomTree
DHS	WisdomTree High Dividend Fund	14.64%	$1.31 B	962	0.38%	29.63	2.67	3.19%	Dividend	06/16/06	WisdomTree
JKD	iShares Morningstar Large-Cap ETF	15.83%	$643.76 M	76	0.20%	20.58	3.33	2.27%	Market Cap	06/28/04	iShares
PEY	PowerShares High Yield Equity Dividend Achievers Portfolio	17.60%	$1.02 B	50	0.54%	43.63	2.31	3.19%	Dividend	12/09/04	PowerShares
SDY	SPDR S&P Dividend ETF	15.41%	$14.79 B	107	0.35%	26.41	3.01	5.40%	Dividend	11/08/05	SPDR
VIG	Vanguard Dividend Appreciation Index Fund	12.70%	$22.56 B	184	0.09%	24.33	4.24	2.08%	Market Cap	04/21/06	Vanguard
NOBL	ProShares S&P 500 Dividend Aristocrats ETF	--	$2.45 B	50	0.35%	24.56	3.87	1.79%	Equal	10/09/13	ProShares
WDIV	SPDR S&P Global Dividend ETF	--	$82.31 M	99	0.40%	19.75	1.85	4.73%	Dividend	05/29/13	SPDR

ETFs that could double your money in 5 years (data collected as of September 2016)

The above are some of the ETFs that have returned around and above 15% compound rate over a 5-year period. That translates to doubling your money over 5 years.

If you had $1 million at the beginning to invest in those ETFs, after 5 years, you would have $2 millions. $1 million richer.

The image above shows the performance of one of the ETFs.

Final thought

If you had been investing in stocks for more than 5 years but still were unable to double your money, you could consider to switch to buying ETFs instead. ETFs simplify things. My $0.02.