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The benefits of investing in ETFs

by , 06 November 2015

Over the years, there has been a strong move to exchange traded funds.

One of the major reasons for a rise in their popularity is the realisation that actively managed funds have a strong tendency to fail on the performance side of things.

On the other hand, passively managed funds, like ETFs, follow the market's performance, and this strategy can pay off over the long-term.

So in addition to this, why should you consider investing in ETFs?

Let's take a closer look…


What are ETFs?

 
ETFs are passively managed investment vehicles. They trade on the stock market, just like shares. 
 
The funds hold different assets depending on the ETF, including shares and bonds. Many investors view them as listed unit trusts.
 
ETFs mirror the performance of an underlying index or asset. As an investor this means you can potentially benefit from their performance.
 
ETFs launched in South Africa 15 years ago. Since then, the number of available ETFs has grown dramatically, following in the footsteps of UK and US markets.
 

The advantages of ETFs

 
Instant diversification
If you invest in an ETF tracking an index, you gain instant exposure to the companies making up the index. This gives you instant diversification, which lowers your risk and can improve performance.
 
A cheaper alternative to shares
If you wanted to build a portfolio of all the shares making up an index, such as the Top 40, it would mean investing in 40 different shares, which comes with 40 different transaction costs.
 
By investing in the ETF, you’d only pay this cost once.
 
Very transparent
When you invest in ETFs, you know exactly what you’re investing in. You can see which shares the fund invests in and the weighting of each.
 
Easy to buy and sell
As ETFs are listed on the stock market, they’re very easy to buy and sell. You can trade them whenever the stock market is open.
 
So there you have it. The benefits of investing in ETFs.
 
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The benefits of investing in ETFs
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