I am sure many of you reading this will have heard terms such as ‘index funds’, ‘compound interest’ or ‘S&P500’ thrown around. You may want to make your hard-earned money work harder for you. You may want to get in on the action but just don’t know where to start. Exchange traded funds (ETFs) may be your answer.

So, what is an ETF?

An ETF or ‘Exchange Traded Fund’ is a collection of assets under the one investment transaction, wrapped in the one investment, which can be any mix of shares, bonds or commodities, rather than buying hundreds of shares, bonds and commodities individually. This investment, or ETF, can track the performance of a particular Index, or stock market. Perhaps the most recognised example of an Index being the S&P 500. The S&P 500 is an index of the 500 largest and most successful companies trading in the United States, and rather than individually buying shares in each company listed, there are investment company ETF providers which sell ETF’s which track the performance of the entire Index.

An ETF can also track a particular niche sector, or indeed a particular geographic region. In fact, the ETF can be equal-weighted, between all companies in the S & P 500, if you so wish. An ETF can track a sector such as Pharma, Financials, Quantum Computing or Energy. An ETF can track the leading 200 companies in Australia, or the leading 600 companies listed in Europe also.

Where can I buy ETF’s?

ETFs are listed and traded on stock exchanges just like regular shares. This gives you a great deal of flexibility regarding when you want to buy or sell shares. The largest ETF provider globally is BlackRock, operating under its iShares brand. Other major global ETF providers include Vanguard, Invesco, and State Street (through its SPDR ETF brand), which consistently rank among the top providers worldwide. A broker is required, a qualified investment professional is recommended, to help navigate the murky stockbroking world, avoid the snakes and ladder pitfalls, and ensure you remain tax compliant, and help you avoid travelling to Cyprus to get your money back. Online broker apps are available, and quite often resemble online PaddyPower accounts, and similiarly Paddy eventually keeps the pot.

Are ETF’s expensive?

Buying 500 individual shares would result in 500 trading fees, stamp duty on 500 individual shares, and possibly be a full-time job. Buying a single ETF which tracks the collective performance of 500 companies incurs a single trade fee, zero stamp duty, and typically has a fee or total expense ratio of one tenth of one percent. No broker commissions should apply.

The Advantages of ETFs?

ETFs allow investors to diversify, using efficient market theory, with very little trading.

Flexibile, and liquid.

Cost effective.

Allows transparency and a self-administered approach.

As always, if you have any questions regarding this topic or any other topic for that matter, Please do not hesitate to Get In Touch.