An ETF (Exchang- 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 a 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.
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 general stay under 0.3% – and that’s what we want!
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 investments. As a result, fund managers don’t need to make so many trades with ETFs, 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? 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.
It’s important to remember that while ETFs are cheaper than mutual funds and other types of investments, they aren’t free. If you really wanted to pay less money on your portfolio, you could consider buying all of those individual stocks and bonds which the ETF invests in. While this could technically save you a bit of money, we’d suggest that the time and effort it would involve would be better put into further growing your wealth!
On top of this, you’ll need to bear in mind that there will be a small commission fee whenever you’re buying and selling units, and the size of that fee depends on the broker and their terms and conditions.
When dealing with any diversified funds, you have somewhat smaller chances for big gains than you would if you were to buy individual stock. But we believe in minimizing risk alongside maximizing returns, so while this might be true, losing your investment is also considerably smaller.
Lastly, do remember that there are minimum commission fees for buying and selling units. These will depend on the broker used, but WealthFace is on hand to take the stress out of the process every step of the way.
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