ETF

An ETF (Exchange Traded Fund) is an index fund traded on a stock exchange. Most ETFs track a market index, such as the SMI or the S&P 500, and aim to replicate it as closely as possible. This allows investors to invest in an entire market in a highly efficient manner, thereby achieving a high degree of diversification.

Unlike actively managed investment funds, passively managed ETFs do not attempt to beat the market index. Most active funds fail to do so in the long run anyway. This helps avoid tactical investment mistakes, saves on high fees, and enhances the compound interest effect.

ETFs offer several advantages:

• Low management costs (TER)
• High liquidity and tradability on the stock exchange, meaning no front-end loads or redemption fees. Generally low spreads.
• Diversification across a very large number of individual securities (e.g., stocks, bonds, commodities, etc.).
• They track the underlying index as closely as possible, enabling cost-effective, passive investing.

What is an ETF? What should you look for when choosing one? Learn more in our video podcast with True Wealth CEO Felix Niederer.