What is an Exchange traded fund?
Exchange Traded Funds or ETFs are listed investment products that track the performance of a group or “basket” of Shares, Bonds or Commodities. These “baskets” are known as indices. You have probably heard of the Top 40, for example, which is a single investment that gives the investor exposure to the 40 biggest shares on the JSE.
Costs involved
Since the investment tracks an index and is not actively managed like most Unit Trusts as we discussed last week, the costs are very low.
You can invest as little as R500 p/m and any lump sum amount you can afford…so again, you have no excuse why you are not investing!
Which company offers ETFs?
Satrix (www.satrix.co.za) offers ETFs and you can do all of this online… there are however a few EFT options, so you might want to talk to someone there about the suitable option for you.
Risk
While there is always risk involved when accessing financial markets, you can mitigate this by choosing funds that are not as risky BUT remember; the higher the risk, the higher the expected return.
Return
Unlike a bank account where the interest rate is fixed, the return on Exchange Traded Funds fluctuate with how well the index is performing, that’s why it is best to invest long-term.
Here is an example of historical returns from etfSA’s website:
Access to funds
Once invested, it is very easy to access your funds (normally with less than 7 days), so they provide liquidity just as with Unit Trusts but always remember your investment goal and not withdraw your funds on a whim!
Why Exchange Traded Funds?
Because #girlsjustwannahavefunds…. Amongst other very important things 🙂
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