ETFs perhaps aren’t as cost effective as you believe
are collective investments that are listed on the stock market, the experts at the South African Investor
explain. In other words, they act like many unit trusts, which don’t have listings on the stock market.
But just like unit trusts, ETFs come with costs. And you may not have considered some of these costs when you look at investing in ETFs.
Recently, the CEO of Sygnia, Magda Wierzychka, told MoneyWeb
that if you compare the costs between investing in ETFs and unit trusts, “ETFs are ‘three to four times more expensive’ than unit trusts that track the same index”.
So is investing in ETFs more expensive?
The higher costs associated with investing in ETFs comes from having to conduct your buying and selling through a stock broker, Patrick Cairns in MoneyWeb
You need to pay brokerage for each transaction you make. This will depend on who you trade through as different brokers have different fees and fees structures.
To keep your account open, you also have to pay a fee, which you need to take into consideration.
And then there’s the bid-offer spread. This is the difference between the price you can buy an ETF at and sell it at. And for some ETFs, this can be wide.
It really comes down to your investment habits. If you’re an active investor, you’re paying those costs anyway. If you only open an account with a stock broker to buy ETFs through, it does add to your costs.
And just as with investing in shares, the more you invest in one transaction, the more cost effective it is.
If you’re weighing up whether to invest in an index tracking ETF or unit trust, you need to consider the costs depending on how you already trade. If you don’t have a brokerage account and want to invest in an index tracker over the long haul, unit trusts could be the more cost effective option for you.
As with all investments, fees have an impact on your returns
and you need to consider them.
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