How to choose an ETF

ETF stands for ‘Exchange-Traded Fund’, and while the name sounds a bit technical, the idea behind it is pretty straightforward:

• Fund: a pool of investors’ money that’s used to invest in companies, bonds or other assets. When the fund’s investments go up or down in value, investors share in those gains or losses.

• Exchange-traded: you can buy and sell it on a stock exchange, similar to how you’d trade shares

Choosing an ETF can feel a bit like sorting through your phone’s photo gallery for the perfect picture of your dog. At first, you think you’ve only got a handful of options… and then suddenly you’re scrolling through hundreds of choices wondering how they all ended up there.

But unlike choosing between 20 near-identical photos of your very good boy, picking an ETF doesn’t have to be overwhelming. But you do have to understand what you’ve picked. Here are 10 questions to ask yourself before you get started. 

(A quick note before we get into it: we can’t give you tax or financial advice. You’ll need to speak to a professional adviser for that.)

1. Have I actually read the details?

Make sure you check the basics. At the very least you should know:

• What’s inside the ETF including its top holdings and how many companies, bonds or other investments it invests in. For example, some ETFs invest in hundreds or even thousands of companies across different industries, while others focus on a much smaller group. Generally, the more investments it holds, the more spread out your risk is likely to be.

• What index, if any, it tracks

• How risky it is (see point one in this list!)

• The fees

2. Can I explain this ETF?

Once you’ve read all the details above, can you confidently explain the ETF? If not, you may not fully understand what you’re buying. And if you can’t understand it now, you probably won’t enjoy holding it during a market wobble. The ETFs in Monzo’s investment themes are chosen with this in mind – they’re designed to be easy to understand at a glance.

3. Does it fit my goals?

Are you saving for something years away, or is this meant to be a smaller, more experimental part of your portfolio?

Some ETFs are designed to provide income, often by passing on regular payments from things like company dividends or bond interest. Others focus on growth, aiming to increase in value over time.

Some ETFs are broad and steady, while others zoom in on specific ideas (like robotics, healthcare or clean energy) and can move up and down more dramatically. Neither approach is better than the other, but one may fit what you’re trying to achieve more closely, which is why it’s worth pausing to ask yourself this question.

4. Do I understand the risks?

All ETFs carry risk, meaning the value of your investment can go up and down, and you could get back less than you put in. How much it moves depends on what the ETF invests in. A global ETF full of thousands of companies? Usually steadier. A niche ETF focused on one tiny sector? Expect more ups and downs. The key is knowing what you’re signing up for, and whether it matches your comfort level.

5. How does this ETF fit with the rest of my investments?

It can be helpful to think about how each new ETF works alongside what you already invest in. A good starting point is looking at the balance between shares and bonds across your investments, as this mix plays a big role in how much risk you’re taking overall.

If a lot of your investments focus on similar areas – for example, the same region or sector – adding another one with the same focus might not change your overall mix as much as you expect.

Our investment themes aim to make this clearer by grouping ETFs into simple categories, but the approach you choose is completely up to you.

6. Do I understand the fees?

Every ETF comes with a fee. They’re usually a small percentage of your investment balance, but it’s still important to understand exactly what they are. It’s worth checking the fund’s ongoing charge (often called the ‘OCF’) so you understand what you’ll pay each year. Some funds cost more to run than others, and that’s normal.

You’ll also likely have to pay a platform or product fee on top of this, which varies by provider. And while fees are taken directly from your investment, it’s worth remembering that tax can affect what you keep overall, depending on how and where you invest, so checking the tax treatment matters too.

7. Am I planning to hold this for long enough?

ETFs are usually designed for longer-term investing – often around five years or more. If you expect the value to go up every week or every month, you might be setting yourself up for disappointment. 

8. Is the ETF big and popular enough?

Popularity isn’t everything, but when lots of investors use a fund, it often means the ETF trades more smoothly and stays open. Very small, little-used ETFs sometimes close or merge, which can be inconvenient. A quick look at the fund size and how often it trades can help you avoid that hassle.

9. Who manages the ETF?

Most ETFs simply follow a set list of companies, but different providers still run them. Well-known firms tend to have long track records and clear processes, plus helpful websites with all the details. At Monzo, our investments are managed by BlackRock. They’re one of the world’s largest fund managers, so your money’s in expert hands.

10. Am I comfortable with how often I’ll check it?

Some ETFs move around more than others. If you know you’ll be refreshing the value twelve times a day like a stressed-out stock detective, a steadier, lower risk option might feel easier to live with. Just remember: this often means accepting that it may not rise as quickly over the long term compared to a higher risk, more volatile investment.

Choosing an ETF really comes down to understanding what you’re buying. So if you can answer these questions, you’re off to a solid start.

If you want to keep things simple, Monzo’s investment themes group together carefully selected ETFs so you can focus on the bigger picture rather than every small detail. But however you choose to invest, being in-the-know is what matters most.

The value of your investments could go up or down and you could get back less than you put in. You need a Monzo current account to use Investments. UK residents 18+. Ts&Cs apply.

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