ETF is short for exchange-traded fund and 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.
At a first glance an ETF might look a bit like its distant relative: a unit trust. But unlike its cousin, this sexy 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.
Other ETFs can track things like how gold is doing (NewGold ETF) or even the performance of the MSCI Emerging Markets Investable Markets (STXEMG), which represents large, mid and small cap companies across 24 emerging markets globally. When these indexes go up or down, so does that ETF’s price and the value of your investment.
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
· One Transaction, many shares
· Your risk is spread
· Pocket Friendly
· International Shares - Booya!
· Easy to Buy, Easy to Sell
· Transparent Info
ETF's are also a great match for your EasyEquities tax-free savings account (TFSA) as they are considered Collective Investment Schemes.