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.