Tips on Exchange Traded Funds

2016-01-22 05:28

Exchange Traded Funds, also called ETFs, are comparatively new entrants to the investing world.

ETFs were introduced in the 1990s, and trade on exchanges like individual stocks do. However, they track an underlying investment that could be comprised of stocks, bonds or other financial instruments. One way to think of them is that they are a basket reflecting an underlying asset or mix of assets. You may be asking yourself so what does it cost to buy an ETF?

The good news is that buying ETFs is an inexpensive and effective way to purchase a large index of stocks. At Sunburst Africa, we build client portfolios from ETFs that track stock and bond indices because of those low costs, since low costs are the best indicator of better performance.

ETFs gives you Diversification

ETFs give you the trading convenience of stocks alongside the diversified risk of an index fund (which exposes you to many stocks in a given market).

If you choose well, ETF fees can be as low as 0.10% a year, depending on asset class. That’s not 5%. That’s 5 way lower than most mutual funds will charge you.

At Sunburst Africa, we use reputable ETF providers like Db x-trackers Col in USA, Satrix 40 Portfolio, Db x-trackers MSCI Japan, Db x-trackers Col in Wld among others to create portfolios for our clients.

Can ETFs Work for Retirement Investing

ETFs are widely considered to be a positive development in investing. They can offer liquidity, transparency, cost and tax benefits over certain investment alternatives.

Like any investment vehicle, however, their benefits depend on your portfolio strategy and the ETF in question. At Sunburst Africa, we believe a set of low-cost index ETFs can be a great way to invest for retirement. But certain leveraged ETFs can be quite risky. While they may make sense for certain investors, we don’t use them.

ETFs Cost Less than Most Other Investments

EFs are growing rapidly, with many of the larger funds containing billions of dollars of investments.

Unlike mutual funds, they can be bought and sold whenever the market is open. In addition, certain ETFs can be traded at very low commission at certain brokerages, lowering their costs even further.

ETFs as the flexible building blocks of a portfolio that will change over time. If you’re curious about how ETFs could help your retirement goals, contact me for more information vivian@sunburstafrica.co.za, www.sunburstafrica.co.za

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