31 May 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.
- 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.
- 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.
- 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 🙂