5 benefits of ETFs for investors

Exchange Traded Funds (ETFs) are a very popular way to invest and are used all around the world by personal investors as well as professionals. ETFs enable you to invest in baskets of securities in a single trade, and you can trade them on an exchange throughout the day like a stock. They are not a magic wand that guarantees you will be a successful investor, but they bring certain features that make them appealing for many investors. Below we highlight 5 benefits of ETFs for investors:

1. Benefit of ETFs: Diversification

When you buy an ETF, you are buying hundreds, or even thousands of different securities in one trade. This instantly spreads your risk. Using ETFs, an investor can quickly and easily build a portfolio that covers many different asset classes and geographies.

2. Benefit of ETFs: Accessibility

ETFs tend to have very low minimum investments meaning you don’t need to have a lot of money to get started! You can start building a portfolio of ETFs with just a few hundred and top up as you go.

3. Benefit of ETFs: Cost Effectiveness

ETFs are cost effective on many levels. If you had to go and buy all 500 stocks that made up the S&P 500 you would pay your broker a commission every time. These fees can quickly add up and take a toll on your return! ETFs allow you to buy all 500 shares in one go and only pay one brokerage fee – significantly reducing the cost of building a diversified portfolio.

The second level of cost efficiency comes down to the fees charged by the ETF provider. Those fees mainly cover their operating costs. ETFs fees started at attractive levels and many ETF providers have lowered their prices over the years to the benefit of investors – some of them even have zero fees now.

4. Benefit of ETFs: Liquidity

ETFs are traded on exchanges, meaning you can buy and sell ETFs throughout the day. In other words, investors who want to sell an ETF and get their profits can do so quickly and at a fair price. In contrast, something like buying a house can be considered a less liquid investment as it would take longer to find someone willing to buy your property and you might need to accept a significant discount if you ever need to sell it quickly. This characteristic makes ETFs a useful tool for an investor who wants to quickly move in or out of a market.

5. Benefit of ETFs: Transparency

ETFs disclose their holdings on a daily basis, so you know exactly what you are buying. You can normally look inside an ETF and see exactly what you are buying, unlike traditional funds that only reveal their top 10 holdings, and even then, often on a delayed basis.