Download
1 / 24
250 likes | 369 Vues
Exchange Traded Funds. Now, you know of two strategies to pick direct stocks. However, for diversification, you would need enough money to buy about 10 companies. What if…. You had just started a new job or had some money that people gave you for your 21st.
E N D
Now, you know of two strategies to pick direct stocks.However, for diversification, you would need enough money to buy about 10 companies
What if…. 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…
What if… A mother is seeking a place to invest the child benefit that she receives, so as to let the money grow and then pay for her child to go to college in years to come. Again, while she does receive a regular income, she doesn’t have enough to buy a strategy.
What if… 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…
What if… A lady knows little about the Chinese market. However the company she works with is sourcing more and more supplies in China, she is reading a lot about the development of the country and feels growth prospects are high. So, she wants to invest in the market, but doesn’t know enough about individual companies to invest in them.
What if… An investor has invested most of is portfolio already, but has learned that the Irish market has fallen quite significantly in the downturn and he feels that it is undervalued. He hasn’t enough to buy a number of companies, but does have enough to buy one or two.
Have these people no choice but to stay out of the stock market or take chances on one or two stocks and hope for the best?
What characteristics does a selection box have? • Choice of different bars of chocolate • One transaction • Pay for the packaging • Can be bought off the shelf in a shop
How does that relate to an ETF? 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
Do you know how selection box producers choose which bars to be included?
No, I don’t know either, but I do know how ETFs choose what stocks to put in their baskets…
Remember indexes? • S&P 500 • FTSE 100 • ISEQ
Indexes • 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…
Why would I do that? • 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
What if…. 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
What if… 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.
What if… 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
What if… 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.
What if… 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.
There are thousands of ETFs, which do I choose? • What does the ETF track? • What sort of diversification is involved? • What is the expense ratio? • What is the dividend yield?
