Investing in ETFs

An ETF investment, or fund, originally comes from the French and simply means: capital. These funds therefore serve money and capital investment. Unlike buying stocks, where investors deliberately acquire securities of a particular corporation, with the goal of sharing in its economic success through price gains and dividends, investing in funds follows other principles. Funds pool the money of many different investors and use this accumulated capital to acquire assets such as stocks, real estate or bonds.

Investing with ETFs

Every investor is meant to benefit from the many advantages of acting as a group, such as the option of entrusting the investment strategy for the ETF investment, as well as risk management, to the responsible investment manager, who, thanks to their expertise, generally generates higher returns than the individual investor. Investors see other advantages in the low transaction costs and also in the spreading of risk, that is, diversification across different assets.

The market for ETFs

The market for ETF investments grows every year, and not without reason, because compared with actively managed funds, ETFs offer a number of advantages. One of them is hard to come by, especially in times of low interest rates. It's the cost advantage: since ETFs always track the index, they don't need fund management. So the ongoing costs of ETFs are considerably lower than those of active funds. Especially in times of slim returns, even 50 basis points can decide between a gain and a loss.
Another advantage of ETF investments is simplicity. Anyone investing in ETFs today knows exactly what is in their portfolio. That isn't as much a given with other financial products. With ETFs, by contrast, all holdings are viewable at any time. Interested investors therefore don't experience nasty surprises and also benefit from long-term financial planning.
As exchange-traded index funds, ETF investments are particularly flexible. During trading hours, ETFs can be bought or sold at any time, and investors are offered good terms. With other actively managed mutual funds, this is different. Anyone who has to redeem fund shares with the fund company quickly loses a few days and often ends up with a lower price. Exchange-traded shares of actively managed funds can also often be turned into cash only slowly. Here, market makers also ensure that trading in ETFs works without problems. This offers investors a high degree of flexibility. Since ETFs have no sales charges, investors can trade these products much more actively.
ETFs primarily aim to track the benchmark index as accurately as possible, or often even to beat it. Since these indexes already define the composition of stock or bond packages, no fund manager is needed to actively manage the portfolio. That's why passive ETFs are also especially inexpensive. Actively managed funds, by contrast, charge significantly higher contributions or fees, and returns are therefore often lower. Moreover, the behavior of those active managers is often hard for investors to follow, whereas with passive ETFs there is complete transparency about the investment strategies used.