3 reasons why you should invest in exchange traded funds (ETFs)

Fsp Invest, 02 Dec. 2013

An exchange traded fund (ETF) is an investment fund that trades on the stock exchange like an ordinary share, the team of experts at The South African Investor explain...

But, unlike a share, an ETF holds assets such as shares, commodities and currencies.

For example, there are ETFs that passively track benchmark indices, such as the JSE Top 40 Index. And there are ETFs that track the performance of precious metals, like gold.

ETFs reflect the performance of the market or underlying asset it tracks.

3 advantages of investing in ETFs

#1: They are cost-effective:
Investing in ETFs helps you build your own well-diversified portfolio without paying the high costs associated with a similar unit trust or buying lots of different shares.

For example, if you want to invest in the Johannesburg Stock Exchange’s big boys, such as Sasol, SAB-Miller and BHP-Billiton, you could invest in the Satrix 40 ETF. This ETF comprises of the top 40 companies on the JSE.

On top of the cost of buying the ETF, you only have your broker’s commission to worry about.

#2: They are easy to trade:
Unlike unit trusts, you can buy and sell ETFs through the day. This means you can take advantage of intra-day highs and lows.

They’re easy to buy and sell through your broker. You buy and sell ETFs just like you would buy and sell shares.

#3: They are transparent:
Unlike managed funds, such as a unit trust, when you buy an ETF you know exactly what companies you’re investing in.

So there you have it, what exchange traded funds are.