Exchange Traded Funds (ETFs) explained.

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 🙂