ETF is short for exchange-traded fund and is an investment that tracks the performance of a collection of stocks or other assets. When you buy an ETF, you’re getting exposure to 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 track indexes like the S&P 500 or closer to home, the JSE Top40.
At a first glance an ETF might look a bit like its distant relative: a unit trust. But unlike its cousin, this little portfolio of different shares, bonds, and other instruments, is single and ready to mingle – it can be traded on stock exchanges (like the JSE) as one instrument. The most common ETF’s are designed to track the performance of a market benchmark or index by mirroring the makeup of that index in a portfolio
ETFs are an important diversification tool that have recently gained popularity because of their costs, which are lower than traditional actively managed funds. That means you don’t have to pay high fees to own one (we love that)! Instead of buying a bunch of physical gold pieces, burying them and drawing up a treasure map (X marks the spot), you can buy a gold ETF and still enjoy the perks.
The Upside of ETF's include:
One transaction, many shares: ETFs hold a variety of shares and sometimes other inverstment instruments, spreading risk across different asset classes and reducing the impact of poor performance in any single share. This can be local or international shares.
Easy to buy, easy to sell: ETFs trade on stock exchanges, allowing investors to buy and sell shares at market prices throughout the trading day.
Accessibility: ETFs provide access to markets and asset classes that may be difficult or expensive to access individually, enabling investors to gain exposure without specialized knowledge or large investments.
Transparency: ETFs regularly disclose their holdings, enabling investors to make informed decisions by understanding the fund's composition.
Flexibility: ETFs cover various investment strategies and asset classes, allowing investors to focus on specific sectors, regions, or themes and diversify their portfolios.
Dividends and Reinvestment: Many ETFs distribute dividends/interest, which investors can receive as cash or reinvest to compound returns over time. Some ETFs offer tax-free interest and automatic reinvestment policies.
Available in tax-free savings account: ETF's are also a great match for your EasyEquities tax-free savings account (TFSA) as they are considered Collective Investment Schemes.
You can find and compare all local ETFs by performance, size, risk, asset class, strategy and more by using our EasyCompare tool:
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