4 Reasons why I love ETFs

10/18/2016


If I could go back in time and give myself advise, I would tell my 20-year-old self (that's when I started earning a salary) to start investing in ETFs (Exhange Traded Funds). These funds are comprised of stocks, bonds, and commodities.

I started when I was 23 year old. If I started earlier, my investments would have been in a better shape. At the time all I did was just put money into the investment accounts without really knowing what I was doing. Still, this was one of the best money decisions I made.

While investing has no short cuts, I believe that ETFs is one of the best best way to save time and potential headaches compared to owning individual stocks. Anyone with a bit of money can do it. You can learn as you go. The important thing is to start.

ETFs are unique in that they offer you instant diversification, daily liquidity, complete transparency, tax efficiency, and most important, low fees.

Here are 4 Reasons why I love investing in ETFs:

Passive management

When I started investing, I lacked the expertise, or interest in analysing and monitoring individual stocks. But I still wanted to invest in the market. I found them to be really easy to invest into. All I did was go to a website - been using Satrix - printed out their forms, filled them, and send all the necessary verification forms and I was done. I didn't look at my investment until much later. I was quite surprised to see how well it was performing.

Low cost to own

Their fees are much lower than those of an actively managed fund and this means you'll save money on annual costs without the commotion and the commissions of individual stock picking.  Lower charges mean that ultimately you will keep more of your returns. My total broker fees hover between R8 -10 a month. They've never been higher than that.

Diversification

ETFs come in a wide variety of categories.  Currently I have three ETFs - one in property, one in industrial an the other is an international ETF. The majority of dividend ETFs hold between 40 and several hundred companies and are well-diversified across a number of industries and countries. That means that ETFs will offer you instant diversification into a portfolio, providing you with some protection against being overly exposed to a sector that falls out of favor. Over the long run, diversification reduces risk without impacting returns.

Ease of buying and selling

You can buy and sell ETFs from an investment firm or online brokerage at any time when the stock exchange is open, at the current market price at the time of the transaction. ETFs are traded throughout the day at the current market price. You’ll usually pay a commission when you buy or sell an ETF.

So if you have been looking for a simple and yet easy to understand investment, I encourage you to check out ETFs. Getting started with ETFs has never been easier.

Keep this in mind: the best ETFs to own are the ones that help you to reach your own unique financial goals. And just because a certain ETF is popular, heavily advertised, or widely followed, doesn’t necessarily make it better versus other ETFs or an appropriate choice for you. As with any investment, conduct thorough research and make sure you know what is in an ETF before you buy it.

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