What are ETF funds?
ETFs are a way of investing in hundreds to thousands of companies at a time. When you buy an ETF, you don't have to waste time tracking stocks of specific companies and constantly buying and selling them.
This is called „passive investing“.
That's because ETFs don't look for specific investments, they invest in the entire market. They buy hundreds or thousands of stocks and bonds. In this way, they spread the risk and reduce it significantly.
What are ETF funds for?
Thanks to ETFs, you can get a well-distributed risk investment very cheaply, even for little money. There is little to match their efficiency today.
For a variety of long-term goals such as retirement, children's education or buying a home, ETFs are a simple and ideal tool.
Security of ETF funds
ETFs are very safe. They are governed by strict legislative rules and are regulated and controlled by many government bodies.
The owners of the fund's assets are investors like you. The assets consist of securities (stocks, bonds) and cash. A trustee, such as Blackrock, manages and invests the assets. It cannot otherwise dispose of it.
This is supervised by the depositary in addition to the regulator. ETF funds are held by investors in asset accounts at a bank or securities dealers (e.g. Finax) like other securities. If necessary, they simply cash them in, just as they do when they buy them. They sell them on the stock exchange and get their money in the account via a trader's instruction.
How do ETF funds work?
ETFs do the work for you. Through ETFs, you invest without the need to pick investments and without the mistakes of investment managers or strategies.
What's more, it's also very cheap, as you don't have to pay these fallible investment managers.
The acronym ETF stands for „exchange traded funds", so they are funds that are traded like stocks.
ETFs buy securities according to a selected market index, called „index copying".
What is an index?
A market index is an indicator of the prices of selected securities in the market. Thanks to it, we can tell whether companies are doing well or not in a given market and whether the value of such a market is rising or falling.
You can't invest directly in an index, it's just a statistical indicator, usually a weighted average of the prices of those securities. The purpose of the index is to simplify and facilitate the tracking of market developments. Whenever there is talk of markets rising or falling, there is talk of indices changing.
Since index funds, of which ETFs are one, replicate this index, this means that their unit-holders, through the fund, invest in all the companies that make up the index. And just as the companies in the index do well, so does the ETF fund.
What is a fund?
The fund pools the money of several people who want to invest. Small investors may not have the capital and knowledge to put together an investment portfolio. That is why funds are created to allow the public to easily appreciate money. A fund pools investors' assets and invests them together as one portfolio, thereby spreading the risk.
How to invest in ETF funds?
You invest through a stockbroker or bank by placing a buy order. In this case, you manage the investment yourself, so you need to know what to buy and how to buy it. This approach may be cheaper, but it is also riskier and requires time and knowledge.
2. Through a managed portfolio
The stockbroker manages your portfolio for a modest fee and you don't have to worry about anything. In Finax, you receive professional management with sufficient risk spreading, due diligence and rebalancing (maintaining the right composition of securities to achieve the desired return).
Investing involves risk. ETFs are no exception. By investing in stocks, bonds or other assets, they bear the full risk. Primarily, we are talking about market risk, which means that their value fluctuates over time and does not grow at a constant rate. Investments in ETFs can also fall into losses. When markets fall, so does the value of ETFs. These are facts to keep in mind when investing in ETFs.
A sufficiently long horizon is the best tool to reduce risk. Take a look at the modeled performance of one of our portfolios: