ETFs are and remain a popular topic for many investors. This is definitely related to the fact that there are many advantages that shape the approach and, as a whole, are something that as an investor can be easily integrated into your everyday life. Yes, among other things, without much effort.
What other advantages are there? A great question. So let’s go back to the roots today and take a look at three advantages that every ETF investor really needs to know. Fortunately, these are the easiest.
A first advantage that every investor needs to know is the simplicity behind the passive funds. Seriously, the passive funds in particular are based on a rather simple concept. With each purchase of the fund shares you are directly diversified.
In addition, you hardly need time to put together a portfolio. No, all you need is some knowledge of the fundamental opportunity and the risks across the market. As well as a selection of which passive funds you want to invest in. From this period on, everything runs automatically.
Maybe also because you invest automatically month after month via savings plan. Savings plan executions can mean that you never really have to deal with good timing. No, but will always start at average rates. An important first advantage is therefore: ETFs are simple and possibly because of this something for everyone. An important interim conclusion.
Most ETFs are also cheap. Admittedly, there may be some exotic species. Or, more recently, non-transparent ETFs. Or other fun gimmicks that some fund managers or asset managers come up with to get fees. However, the vast majority of market-wide passive funds from well-known names are inexpensive. Frequently, the fee range here is well below 0.5% a year. Some representatives, such as a selection on the S&P 500, are already there for 0.0x%. It is definitely inexpensive.
The price advantage is particularly clear when you compare actively managed funds: These often have a fee range that is above one percentage point. Sometimes even significantly above. There may be some fund managers who are worth their money. However, it isn’t a big part and they don’t beat their benchmarks. That is also why it is important to choose a cheap fund approach so that a large part of the return remains with you.
A third ETF advantage that every investor really needs to know is the return. Again, this is a topic that you can probably write entire books about. And the return definitely depends on the index. However, it has become common practice to speak of an average value of 7 to 9% pa over the long term. Strong values for such an advantageous approach. And certainly something that speaks for the inexpensive passive funds.
But let’s talk a little more intensely about the return: you shouldn’t think such an average value linearly. No, an average return of 7 or 9% per year means that the markets revolve very, very broadly around this mean: Sometimes it can go up to 25% in a year. Maybe 15% down next year. Maybe even 40% up. At the top, some indices have lost over 50% of their market value in individual years. Years where an index or the broad markets stand still are also possible.
As you can see, the range of returns is large. However, and this is important: In the long term, the markets are likely to continue to revolve around a higher single-digit percentage. All you need is patience and the will to take part in this sometimes turbulent ride.
Advantages that every ETF investor really needs to know!
Simplicity, price and return are therefore the three main things that make up a passive ETF approach. Accordingly, these are the advantages that every ETF investor should know. Basically as a basis. Maybe you already knew that at an advantage. However, there are times when it is not wrong to make yourself aware of this basic information again.
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Motley Fool Deutschland 2020