Passive Investments: Why ETFs are a good way to start

The investment world has an assortment to choose from, and if you just started putting your feet in the ocean, you might be unsure of which passive investment is good for you. Have you already considered ETFs?

Let us introduce you to ETFs, so you have the ball in your court for you to decide if it is the form of investment you see yourself getting into. After reading this you will have a much clearer idea of what they are as well as what returns and security they offer you. 

The abbreviation stands for exchange-traded funds, i.e. exchange-traded index funds. You can invest in them inexpensively with security. All it takes is one ETF to invest in many different thousands of companies around the world. The beauty of it is its transparency and the fact that you can trade ETFs on all major stock exchanges.  

ETFs are incredibly budget-friendly. If you imagine that you can set up a savings plan with just a couple of francs to build up assets, you will not need to  break the bank to lay the groundwork for this passive investment either. 

Yet another perk of ETFs lies in their minimal costs. Although there are some fees you should look out for, ETFs are highly cost-effective. But before we dive into that, let’s look at what makes passive investments different.

Actively managed funds, as the name says, are actively managed by experts and in many cases have the objective to perform better than the market average. This active management can also have the advantage of being much faster to react to changes. However, it’s fair to say here that in many cases active funds did not manage to outperform the market. 

ETFs are usually based on an index and therefore passive investments. While they are super cost-effective, they can never perform better than the index they actually track. To discover this more in-depth, check out our other article on ETFs.

At first glance, it may thus seem more tempting to choose an actively managed fund because you as an investor do not have to make any decisions regarding your investment. For any fund, you always have managers do that for you. 

But, needless to say, fund managers are not a charity and of course want to be paid for their work of support and monitoring. This ultimately makes actively managed funds more expensive than ETFs. 

Apart from that, going with a passive investment like this has the advantage that you can let your money work for you in peace. You do not have to raise a finger about anything.  

Although ETFs are less expensive than actively managed funds, there still are some fees you have to be prepared for: 

• Management fees 
• Issue surcharges 
• Transaction costs at the active fund level

Funds, therefore, can have several “ hidden” costs that only gradually become apparent. Prepare yourself to chip in a bit more, as costs do prevail as part of the process  along the way.

To learn more about the fee structures and what you should expect for different types of investments, check out Investopedia. Of course, you should also not be afraid to discuss your in-depth questions about passive investments with an expert.

Generally, ETFs offer a broad and efficient way to invest with low amounts and, depending on their set-up, broad diversification.  

As you can see, ETFs give you a really cost-effective opportunity to invest money in the faith of good returns without really having to become a stock market expert. You can choose the strategy that suits you, your personality and your current life setting.

Navigating the diverse offerings of investments might be overwhelming at first encounters, especially for newcomers. But once you learn more, you will be able to know that with just one ETF, you can get a diverse portfolio. You will also realise that you do not have to break the bank to build assets while you remain empowered to let your money work effortlessly.  So, as you consider your passive investment strategy, do not leave ETFs behind.