The benefits of investing in Exchange Traded Funds (ETFs)

Investing money with the hope of increasing your investment over across duration of time, over and above the rate of inflation, is a concept that most of you are familiar with, especially if you have some disposable income or savings that you want to protect and grow.

The problem is that many ordinary savings vehicles, like ordinary savings accounts for example, do not offer good returns, which is why many people turn to thing like stocks and shares ISAs and fixed term bonds. But there is something relatively new that is causing a lot of interest among investors; especially those who have a good knowledge of the investment industry and who manage their own investment portfolios. This new product is something called ETFs.

What are ETFs?

ETF stands for Exchange Traded Fund. Starting with one fund in 1993, the appetite for this new brand of investment grew with the number of available funds increasing to 102 in 2002, just under 1,000 by end year 2009, after the Securities and Exchange Commission began authorizing the creation of actively-managed ETFs in 2008. Now, in 2017, the total number of ETFs available has reached almost 2,000.

ETFs are a little bit like stocks and shares, but whereas stock and shares are issued in one company name, ETFs are indexes of various industries, markets and commodities.

The reasons behind the growing popularity of ETFs

The reason that they are becoming so popular is that they have relatively low management costs and the returns on your investment are reasonably predictable. That said, whenever investing in stocks and share, or other linked markets, you must always bear in mind that investments can go down as well as up, which is why this type of investment should be considered more long term than short.

The stocks and shares market value can plunge. However, it always bounces back and continues to grow once more. But if you have invested in the short term and you have to liquidise your investment when the market is at its lowest, that’s when you can lose money.

One of the attractions of ETFs is their diversification. Instead of investing in one company, with all its attendant risks, you invest in several companies, and with some ETFs, several industry sectors too. This offers much better diversity, vastly reducing the risk of losing money.

The gains on investment can be enormous when considered alongside other platforms like standard savings accounts, and to make selection a little easier, the Business Insider website has just listed 12 of the top ETFs that are producing a 25% return in 2017.

The ability to change your portfolio almost immediately

Another of the big advantages with investing in ETFs is not only the fact that they are traded on a daily basis like stock and shares, but unlike stocks and shares, which are only quoted once per day, ETF values are updated every ten minutes. This means that if your portfolio needs to be adjusted in any way, it can be modified almost immediately.

Finding an IFA who invests in ETFs

According to Business Insider website, investing in ETFs is not all that difficult. However, choosing the best ETFs is a little more complicated which is why they have just published a list of the top 12 ETFs that are producing a return of 25% this year.

But for most ordinary mortals, who have little or no knowledge of how to create investment portfolios and how to manage them, it’s more advisable to find servicing ETFs you feel you can trust. The good news is that some IFAs actively choose ETFs as part of their portfolio strategy.

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