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2 Nov 2014

EXCHANGE TRADED FUND

I have been getting a lot of emails about the exchange traded fund (ETF) lately. I'll try and unpack it a bit here. I am a fan of ETFs, please pardon my positive look at them. But Really they are just the best money growing tool for new investors. Being low capital intensive and so on and so on... Lets look at our latest email below:
"You really inspired me, I would like to know more about Exchange Traded Fund”
Patricia
An ETF can be your foot in the door of the JSE or any stock exchange. One fund typically combines or has a collective of  stocks, commodities, currencies and/or bonds, which offers the needed asset diversification for an investor. Two people in my family invest in the ETFs because of their passive nature, low costs, tax efficiency, and liquidity. This is my experience on the subject from the two family members (hubby and son):

Low Cost
I once compared the ETFs to Unit Trusts. ETFs are very cheap because they are mostly commission-free. In their statements I see an admin fee. It’s negligible too. They are generally tax efficient too. That’s a really big plus. Always bear in mind that whatever cents you are saving in trading translates to more in your portfolio. It may be a few rands which add up to hundreds of rands in the long run.

Liquidity
Most investors want to know that they can get their money whenever they need it by selling their assets. In that case, an Exchange Traded Fund could be one of your options. You may actively trade your units using any of the available platforms, if you are the hands on type of a person. This means that you may buy and sell your units as you please.

Diversified Portfolio
All of us personal finance divas love a diversified portfolio. I hope we do. Exchange Traded Funds can be a good way to diversify one’s portfolio. Each ETF is typically a good basket of stocks, currencies, bonds or commodities. These may be from the same sector or various industries like finance, minerals, technology, top performing stocks, etc. Some are from same country and some international. Some are a group of high dividend stocks which are great for dividend investors. Now that we are on this topic, I have to write about my experience on international ETFs soon. 

Compounding
With my 11 year old son’s ETF, we both agreed to automate the re-investing of dividends. That small income buys more units of the fund and so the ball rolls. Apart from the capital growth he earns, he also gets his dividends automatically invested. That's the power of compounding. Some people may choose to take out their dividends out. I wouldn’t, unless I would invest them elsewhere.

Risk
Like any other investment, there are risks associated with trading. From the periodic trends, exchange traded funds generally look very good. Remember to do your research to identify your industry of choice and ETF type.

I did write about the Exchange Traded Fund before. Click on that link to open it.
Let me also commit to trying to get an expert to write a more comprehensive article on this subject. I'll beg them to go easy on the technical language.


You too may ask me a question by clicking on this link. You may also leave a comment below. And off course tell us about your own experiences or guest post here. We welcome any views. We also love other people's financial freedom journeys. Whether you just started paying your debt up, acquiring assets or taking your well deserved early retirement.

All the best in your investment choices,
SISA

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