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Six reasons why you should invest in ETFs

by , 05 May 2014

If you want to invest on the stock market without buying individual company shares, one option open to you is to invest in exchange traded funds (ETFs). ETFs are baskets of shares that trade on the stock market just like shares. ETFs hold assets such as shares, bonds, futures and commodities. You can buy and sell ETFs through your stockbroker. Read on to uncover the benefits of buying ETFs…

Reason #1: ETFs give you instant diversification

ETFs are diversified financial products, the team of experts at The South African Investor explain. For instance, if you invest in an ETF that tracks an index, you have exposure to many of the companies in that index.

This reduces your risk and can improve performance.

Reason #2: ETFs are cost effective

You get the advantage of diversification at a low cost when you buy ETFs. For example, if you invest in an ETF that invests in 10 shares, you only pay one transaction fee instead of 10 if you had bought each share individually.

Reason #3: ETFs are transparent

These financial products are totally transparent. You know what companies you’re investing in. And you know the percentage exposure to each of them.

This also makes monitoring the performance of your ETF easy.

Reason #4: ETFs are easy to trade

You can buy and sell ETFs at any time the market is open. You can also take advantage of price fluctuations to sell and buy them.

You can check the most recent price of an ETF online.

Reason #5: ETFs are flexible

Not only can you buy ETFs, you can sell them too (short). So you can invest depending on what way you think the market is heading.

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Reason #6: ETFs are tax-efficient

Unlike buying shares, ETFs are exempt from securities transfer tax (SST). This is 0.25% of the purchase price when you buy shares.

So there you have it, six reasons why you should invest in ETFs.

Six reasons why you should invest in ETFs
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