#2 What is an ETF? And what to look for when choosing one?
Have you heard of ETF before but not sure what ETF is exactly? Don't worry, we're here to provide you with all the answers. In this podcast episode, Felix Niederer, founder and CEO of True Wealth, explains everything you need to know about exchange-traded funds.
What is an ETF?
Imagine going to the market and buying a basket of different fruits. That's exactly how an ETF (exchange-traded fund) works. But instead of fruits, this basket contains securities such as stocks. If it's a stock ETF, that basket contains stocks from different companies. The takeaway? An ETF usually follows an index – which is a sum of selected stocks. These stocks are represented in certain weightings, with larger companies having more weight than smaller ones. The goal of an ETF is to mirror these weightings and thus reflect the performance of the index.
Why should you be interested in ETF?
Well, if you want to approach your investments in a scientific way, ETFs are your best friend. Why? Because they allow you to invest in different asset classes, spreading your risk widely. Instead of investing in just a few stocks, you can spread your money across different areas – be it the Swiss stock market, the US market or others. The best part? ETFs are also cost-effective. Small differences in costs may not seem like much, but over time they can make a weighty difference.
Spoiled for choice: What should you look for?
With over 10'000 ETFs to choose from, the choices can be daunting. But don't let that scare you away! Here are a few key points to look out for:
- Cost: Look at the TER (total expense ratio). This is the ETF's annual expense ratio. Small percentages can have big impacts.
- Liquidity: the bid-ask spread shows the difference between buying and selling prices on the exchange. Pay attention to the ETF's liquidity as it affects the bid-ask spread.
- Tax considerations: Tax treatment can vary depending on the ETF domicile. Make sure the ETF fits your tax situation.
- Replication Method: understand how the ETF replicates the index. There are different methods, each with its own advantages and disadvantages.
Your advantage with True Wealth
At True Wealth, we have already selected the best ETFs for different asset classes for you and implement your customized investment strategy, always diversified and cost-effective. No stress, no complicated decisions.
ETFs are a great way to invest in a scientifically sound way while minimizing your investment risk. If you're looking for a simple and cost-effective way to invest, ETFs are definitely worth considering. Remember to consider the above factors when making your selection. And if you're looking for a hassle-free option, True Wealth is here to help you invest your wealth.
Do you have any questions or comments? Feel free to email Felix Niederer. See you soon!