An ETF (Exchange - traded Fund) is an investment fund in possession of an array of investments, carefully selected and managed by your fund manager.
These can include bonds, stocks, real estate, and other investment instruments. These investments are split into many parts and sold to individual investors.
Imagining buying and selling the ‘shares’ of a mutual fund out on the stock exchange will give you a strong idea.
Here at Wealthface, we love investing in ETFs as they successfully combine the best of both worlds; they bring together the flexibility of an ETF stock with the diversification of mutual funds.
Yet, they manage to do this with much lower fees than you’d find in a typical mutual fund.
What are the Advantages of ETFs?
The main advantage of ETFs is the fact that by nature, they carry low fees. In fact, when you compare an ETF to an equivalent mutual fund, you see a radical difference; mutual funds can charge over 2% per year, while ETFs fees generally stay under 0.3% – and that’s what we want!
Read our blog to learn more about: Mutual Funds vs ETFs: What are the Differences and Which One Should You Choose.
As for ETFs when compared to index funds, you’ll notice a difference in the trading method. While ETFs can be traded throughout the day, index funds can only be traded at a fixed price of the day.
In addition, ETFs usually have a lower Total Expense Ratio as it only includes annual management charges, typically 0,5% or less, and brokerage fees.
Whereas index funds are accompanied with multiple charges. The index funds come with an expense ratio in the range of 1% to 1.8%. Even if no transactions are made, investors are required to pay expense ratios.
Read our blog to learn more about: ETFs vs. Index Funds.
Why are they so cheap?
Quite simply because ETFs don’t work by trying to guess which stocks or bonds are set to become winners on the market, and instead track whole packages of an ETF investment. As a result, fund managers don’t need to make a lot of ETF trading, and fewer trades mean lower fees.
Good news! There is no minimum amount to invest in ETFs – you don’t have to pay a dime more than the price of an individual share. In fact, there isn’t much that’s not straightforward and simple when it comes to ETFs. Because ETFs trade on the stock market, they’re easy to buy and sell, and you’ll be able to see the benefits they bring.
If losing out on dividend payments is something that concerns you, you’ll also find plenty to love in ETFs – ETF funds actually collect dividends from their various companies and pass those funds onto you, the investor.
Can you now see why more and more people are turning to Wealthface and ETFs offering the best dividend ETF? It’s clear that ETFs offer the best components of both stocks and mutual funds and maximize your wealth while minimizing risk… and that’s the same approach we take at Wealthface.
What is an ETF fee?
The ETF fee is known as the management expense ratio (MER) or ‘’expense ratio’ ’which is a percentage of the total amount of money you have invested in a specific fund. Each individual ETF has its own fee, which is charged to cover administrative and operational costs.
How are ETF fees charged?
The ETF fees are taken from the fund's assets (net asset value (NAV)) by the fund provider. Wealthface does not charge any MER fees, these charges are taken by the fund manager (Vanguard and Blackrock).
Our standard ETF fee is 0.1% per annum. Therefore, on an investment of $5,000, the expected expense to be paid over the course of the year is $5.00. If the ETF returned precisely 10% for the year, the investor would slowly see their $5,500 move to a value of $5,450 over the year.
Why are the ETF fees important to be low?
The size of the expense ratio is important to investors because it is affecting investors' returns. For example, if a fund generates a return of 10% for the year but has an expense ratio of 4%, the 10% gain will be diminished to roughly 6%.
At Wealthface, we focus on low-costs so that we offer the best ETF with low expense ratios, between 0.1% to 0.2% per year.
Read our comprehensive blog post to learn more about: What are ETFs and Which are the Best and less sensitive to the Economy Cycle.
