ETFs: diversification, efficiency, and cost savings

Last month a bunch of Exchange Traded Funds (ETFs) took the spotlight at the South African Listed Tracker (SALTA) Awards.

We caught up with ETF strategist and advisor, Nerina Visser who highlighted some key advantages and insights about ETFs.

Diversification Made Easy

One of the primary advantages of investing in ETFs is the instant diversification they offer. Unlike holding just one or a few individual shares, ETFs provide exposure to a basket of assets, spreading your risk across various companies, sectors, or even geographical regions (think US, or Europe!). This diversification can help cushion your portfolio against the impact of volatility in any single asset.

Efficiency in Investing

Consider the potential gain of holding an ETF with multiple shares versus holding individual shares. Buying 40 individual shares can be both time-consuming and costly, with transaction costs adding up. In contrast, purchasing just one ETF provides exposure to multiple assets in a single transaction, streamlining your investment process and potentially reducing costs.

Instead of paying 0.25% STT (this is Securities Transfer Tax, and like all taxes, it is non-negotiable) on each buy transaction for 40 individual shares, you don’t pay STT when you buy an ETF that consists of 40 shares!

Cost Savings

When you buy 40 individual shares, you not only incur brokerage fees but also face the burden of Security Transfer Tax (STT) and settlement charges each time you make a transaction. However, investing in ETFs offers cost savings by consolidating these transactions into a single purchase, so a single set of transaction costs. Moreover, ETFs are exempt from STT when bought, saving you 0.25% on each transaction.

By harnessing the power of ETFs, you can optimize your investment strategy, benefiting from diversification, efficiency, and cost savings.

Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an employee of EasyEquities an authorised FSP (FSP no 22588) as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.

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