If you're entering the stock market for the first time, deciding on what to invest in could send you into analysis paralyses. You might have heard about shares, or managed portfolios of shares, but there's another way to invest your money which is increasingly becoming popular for investing newbies: Exchange Traded Funds (ETFs).
What is an Exchange Traded Fund?
An ETF is a collection of stocks or other assets. When you buy an ETF, you’re buying all of the stocks that are in the ETF without having to buy each one separately. Just like stocks, ETFs are traded on an exchange and because of that they can be bought and sold throughout the day. They usually track an index like the S&P 500 or closer to home, the JSE Top40.
What are the benefits of investing in ETFs?
· You can invest in lots of companies with one transaction, instead of having to buy shares in them individually.
· Your risk is diversified because you aren't only investing in one company
· ETFs have many cost saving benefits
· You can invest in global companies, using local currency.
· There's lots of information on each ETF which is available for you to view via their factsheet. This will show you what's inside an ETF, how much each share is weighted, what past performance has been and what the Total Expense Ratio (TER) is.
Just One Lap's Kristia van Heerden shares her experience as a first-time investor who chose to invest in ETFs. Read her story, and get more detail on some of the benefits of ETF investing here:
The two ETFs mentioned in this article are available to invest in here: