A task that could be included among the 12 tests that Hercules had to face. But it can be simplified if it is broken down into five sections to investigate , according to the advice of Blackrock, the largest asset manager in the world.
Table of Contents
The performance
The underlying index
The structure
Knowing when to trade
Don't lose sight of the costs
The performance
It is the first indicator that everyone looks at , the key is not to see the most recent number, but to extract all the historical information. Thus, the more profitability an ETF accumulates over its lifetime, the better we can understand what it can give us in the future.
Let's take the iShares S&P 500EUR-H, for example. What information does its performance data give us ? It depends on where you focus your attention. If we only looked at the year-to-date, which many new investors do, we might be shocked to discover that it has lost more than 24%. But that's not the whole story. In reality, over three years the return is 6.59%, over five years it is 6.37% and over ten years it is as high as 9.30%.
In the end, it is a highly recommended asset despite showing a gambling data brazil phone number decline so far this year . In fact, indexing the S&P 500 is one of the investment recommendations made by all experts.
The underlying index
The second point to select the right ETF requires going a step further in our investment knowledge. A path that requires time and dedication, but is rewarding . And to understand what drives the above figures, you have to understand both what an ETF is and what it contains inside.
An exchange-traded fund, the translation of ETF, is an intermediate product between traditional investment funds and shares . They are made up of a basket of securities, just like investment funds, and each share represents a portfolio of shares that reproduces the composition of the index to which it refers .
This means that the profitability will move according to the performance of the assets to which the ETF is referenced. Right now, for example, those indexed to energy are soaring. This also explains why the iShares S&P 500 in euros ETF has such good results, after all, it reflects the performance of the 500 best companies in the United States.
ETFs Investment Guide
The structure
ETF structures are important because they can affect the level of risk in an ETF, as well as the cost of managing it . Although fully-replicated ETFs are the most common, it is important to understand the structure of the ETF and choose the one that best meets the needs of the investor.
Thus, there are two main types:
“Full replication” ETF : Invests directly in the underlying assets of the index to better track the index .
“Synthetic” ETF : Does not invest in assets directly, but tracks the index through derivatives .
Knowing when to trade
ETFs trade on the stock exchange just like stocks, so the instrument can be traded at any time during the trading hours of the exchange on which the ETF is listed . This makes ETFs a highly liquid type of investment. But this flexibility to trade can also be a problem, as it forces us to be prepared for opportunities when it is necessary to increase or decrease exposure to an ETF.
One of the tips that many experts give about this is to be careful with the opening and closing of the market, since the markets can be more volatile . Therefore, it is usually a good practice to know when to trade ETFs , to do so after the first 20 minutes and before the last 20 minutes of the closing time.
Don't lose sight of the costs
The great attraction of passive investing is undoubtedly the low costs that each investor must bear . This feature significantly improves profitability. The two main costs that must be closely monitored are transaction fees and administration costs . Transaction fees occur when an ETF is bought or sold, while the ETF administration cost is calculated annually.
The opportunity to find platforms that respect this condition of very low commissions is also key to selecting the right ETF. A good example of this can be found on the inbestMe platform , which not only has a wide catalogue of products, but also very low commissions.
If you think that ETFs can help you increase your savings, don't hesitate to look at all the products on ETF portfolios in this field. After all, it's always a good time to decide to save and invest, and it's even easier after knowing the points to take into account when selecting the right ETF to invest in .
