WATCH LIVE | What is an ETF?

The financial uncertainty brought about by the Covid-19 pandemic has highlighted the need for people to take charge of their finances and plan for the future. But making emotion-based investment decisions — particularly during unpredictable times — can hold numerous pitfalls. The psychology behind investing cannot be ignored, and neither can a proper understanding of exchange-traded funds (ETFs).

ETFs are growing in popularity as sensible and cost-effective investment options for both first-time and experienced investors. But first, what is an ETF?

By most people’s understanding, the expectation is that they’d need to invest in numerous listed companies and follow their individual shares on a stock exchange. This requires a significant amount of expertise but can also become incredibly complicated and overwhelming even for the most seasoned investor.

ETFs, on the other hand, aim to deliver the same benefits of individual stock tracking, but they provide convenience and diversification by grouping a number of companies together in a single investment “basket”. Investors then track the performance of the entire basket on an exchange like the JSE, without having to monitor each company’s performance.

But there are more reasons why financial advisers are steering their clients towards ETFs:

Low expense ratios

It costs money to manage people’s investments, particularly when the type of investment is complex and requires active management. For the most part, ETFs are considered passive investment products and are therefore more affordable and appealing for young, first-time investors who are planning for their futures.

Abundant liquidity

ETFs are easy to buy, and easy to sell, as designated market makers are required to assist buyers and sellers. They also give investors the opportunity to free up cash quickly for when it’s really needed.

Diversification

There are currently 85 ETFs listed on the JSE and this allows financial advisers to construct well-balanced, diverse investment portfolios for their clients, so that they are more resilient in volatile economic times and the risk of losing money is reduced.

Low investment threshold

There is no minimum volume purchase requirement when investing in ETFs, and this allows first-time investors to test the water and invest according to their own individual financial circumstances. The good news is many ETFs also qualify for tax-free savings exemption, ensuring investors keep more of their investment profit. ETFs are also well regulated by the JSE and Financial Sector Conduct Authority.

Join the BDFM Investment Dialogues, in association with the JSE, as they invite you to learn more about ETFs and their benefits.

A panel of financial planning experts will explain:

• What is an ETF, what are the benefits, and how can they be used to make you more money?
• What are the various types of ETFs?
• What’s the difference between local and global ETFs?
• What must you bear in mind when investing?
• How can you access an ETF?

Moderated by financial journalist Nastassia Arendse, you'll hear from:

• Robert van Eyden, CEO of FNB Stockbroking & Portfolio Management, and author of Investing Happiness;
• Wehmeyer Ferreira, COO of Stanlib Index Investments;
• Nerina Visser, director and co-owner of etfSA; and
• Itumeleng Monale, COO of the JSE.

Date: Tuesday, September 28 2021

Time: 1pm-2pm