Mar 26, 2015
Choice of different bars of chocolate
One transaction
Pay for the packaging
Can be bought off the shelf in a shop
An Exchange Traded Fund is;
A basket of stocks…
… that provides diversification
… in one transaction
… with a small charge for the wrapper
… which can be purchased on the stock
market
S&P 500
FTSE 100
ISEQ
An ETF simply “tracks” these indexes
The ETF “provider” (like Nestle in the ETF
world) buys the stocks that are in the index
This makes up the fund
So, you, as the buyer have bought the
“S&P”, or the “FTSE” etc…
Buy several stocks in one transaction –
you don’t need that much money
Small charge for “putting the fund
together”
Can be easily bought through the stock
market
You had just started a new job or had some money that people gave you for
your 21st.
You don’t have enough to buy a strategy, but you do want to invest…
By buying something like the S&P500, you can gain a lot of diversification with
one transaction.
With a few hundred euro, you can intelligently invest
The mother with the child benefit who does receive a regular income, she
doesn’t have enough to buy a strategy.By building up that income over a couple
of months and then buying an ETF and repeating that process over the youth of
her child, she will have built up a significant, diversified and low cost
portfolio.
A man asks you where to invest his pension. He has a significant amount of money, but doesn’t want to have to manage a strategy or simply doesn’t want to pick direct stocks…
By buying ETFs in several markets across the world, he will have built up a significant, diversified and low cost portfolio that doesn’t require management or direct stock picking
The lady who wants to invest in the Chinese
market, but doesn’t know enough about
individual companies to invest in them.
By buying an ETF in the Chinese market,
she is getting diversified exposure i.e.
“taking a position” in several stocks.
However, she doesn’t have to bear huge
transaction costs.
An investor wants to invest in the Irish
market as he feels it’s undervalued.
However, he hasn’t enough to buy a
number of companies, but does have
enough to buy one or two.
By buying the Irish ETF, he can gain low
cost, diversified exposure to the market
that he wants with small funds.
What does the ETF track?
What sort of diversification is involved?
What is the expense ratio?
What is the dividend yield?