An investment ETF, or fund, originally comes from the French and simply means: capital. These funds therefore serve as a way to invest money and capital. Unlike buying stocks, where investors deliberately acquire securities of a particular company with the goal of sharing in its economic success through price gains and dividends, investing in funds follows other principles. Funds pool the money of many different investors and use this accumulated capital to buy assets such as stocks, real estate or bonds.

Investing with ETFs

Every investor is meant to benefit from the many advantages of acting as a group, such as the option of entrusting the investment strategy for the ETF as well as risk management to the responsible investment manager, who thanks to their expertise usually earns higher profits than the individual investor. Investors see other advantages in the low transaction costs and also in the spread, that is, diversification across different assets.

Investing in ETFs

The market for ETFs

The market for investment ETFs grows every year, and not without reason, because compared with actively managed funds, ETFs offer a number of advantages. One of them is hard to come by, especially in times of low interest rates: the cost advantage, since ETFs always track an index and therefore need no fund management. As a result, the ongoing costs of ETFs are considerably lower than those of active funds. Especially in times of slim returns, even 50 basis points can decide between a gain and a loss.
Another advantage of investment ETFs is simplicity. Anyone investing in ETFs today knows exactly what is in their account. That isn't a given with other financial products. With ETFs, by contrast, all holdings can be viewed at any time. Interested investors therefore don't get nasty surprises and also benefit in long-term financial planning.
As exchange-traded index funds, investment ETFs are particularly flexible. During trading hours, ETFs can be bought or sold at any time, and investors are offered good terms. With other actively managed investment funds, this is different. Anyone who has to redeem fund shares with the fund company quickly loses a few days and often ends up with a lower price. Exchange-traded shares in actively managed funds also often turn into cash only slowly. Here, market makers also make sure that trading in ETFs works without problems. This offers investors a high degree of flexibility. Since ETFs carry no sales charges, investors can trade these products much more actively.
ETFs mainly aim to track the benchmark index as accurately as possible, or often even to beat it. Since these indices already dictate the composition of stock or bond packages, no fund manager is needed to actively manage the portfolio. That's why passive ETFs are especially cheap. Actively managed funds, by contrast, charge significantly higher fees, and the return is therefore often lower. In addition, the behavior of those active managers is often hard for investors to follow, whereas passive ETFs offer complete transparency about the investment strategies used.