The Benefits of ETFs

When considering different ways to invest your money, why should you take the time to learn about Exchange Traded Funds?

When considering different ways to invest your money, why should you take the time to learn about Exchange Traded Funds? ETFs are a unique investment vehicle that offer some great benefits for those looking to profit from the stock market. They are becoming an extremely popular investment vehicle, and this list of benefits shows why.

Diversification

People use diversity as a tool in investment portfolios to maximise returns and protect against risk. With ETFs, you can diversify your investment simply and easily even with smaller amounts of capital. The range of ETFs you can invest in is quite large, and you can choose an ETF to suit a variety of different investment strategies.

For example, investing in the SPDR S&P/ASX 200 Fund allows you to invest into hundreds of Australia's top companies all at once. The fund aims to track the ASX 200's performance, and you can follow the progress of the ETF throughout the trading day. This broad market exposure is one of the most appealing traits of ETFs.

Low Fees

Not only are you getting broad market exposure, you're getting it in a cost efficient form. Depending on the type of ETF, operating costs are often lower than related managed funds. An actively managed ETF may incur higher costs, and just like shares, you may can choose from different levels of advice and input from your broker/fund manager.

Transparency

Because ETFs are traded on the Australian stock exchange, you gain quite a bit of transparency and liquidity. Unlisted managed funds may not provide these attributes, and you can also track ETF performance throughout the trading day. You know exactly what are you are investing in, and can track current market prices easily in a liquid environment that facilitates buying and selling.

Intelligent Design

ETFs are designed to track an underlying asset, which as we know can include things like commodities, specific companies, market indices and more. It's important to research the history of any fund you're considering investing, but in many cases ETFs give investors confidence that their investment money will closely track the chosen underlying asset.

Tax Benefits

While this may be a secondary concern, it is worth considering that many ETFs have a low turnover of the underlying portfolio (particularly with index-tracking ETFs). This not only cheapens administrative costs (as mentioned), but also avoids capital gains tax. In addition, you may receive further income through distributions.

These are just some of the benefits available to trading ETFs. You still need to research the type of ETF you want to invest in, and like with any investment, you should seek financial advice if you are uncertain. Why not consider finding a stock market seminar that focuses on ETFs if they appeal to you as an investment vehicle.