ETFS: what are they and should you invest in them?

THIS EASILY-ACCESSIBLE, LOW-COST INVESTMENT OPTION IS AN IDEAL VEHICLE FOR BEGINNING YOUR INVESTMENT JOURNEY

LAST year highlighted the importance of having savings to be able to fall back on or dip into when times are tough. They are also an essential way to build wealth to secure the future you want for you and your family.

There are many means to save, but you may consider investing on the Johannesburg Stock Exchange (JSE) through an exchange traded fund (ETF). ETFs offer a great opportunity to start saving and nurture an investment culture in your family.

An ETF is a listed investment product that tracks the performance of a basket of shares, bonds or a single commodity, such as gold.

These baskets are known as indices. An ETF can be bought or sold in the same way as an ordinary share and is ideal for any investor wishing to gain exposure to different sectors and asset classes, both locally and globally.

ETFs offer convenience and flexibility, allowing you to make monthly contributions or a once-off lump sum, depending on your needs. Some ETF platforms do not even have a limit on minimum investments. ETFs tracking local and global markets offer exposure to well-known companies and brands. You can invest in share baskets comprising international companies such as Facebook, Amazon, Apple, and Netflix; local companies from the resource, industrial or financial sectors; even bonds or commodities such as gold, platinum, and palladium. Like any investment guided by market forces, when these various assets do well, your ETF investment does well, while the inverse is also true.

Adèle Hattingh, business development and exchange traded products manager at the JSE says:

“The idea of investing is intimidating for most people, which is why ETFs are an effective way of starting your investment journey. ETFs offer you preselected investments in cost effective, transparent listed funds, saving you time and money.”

The JSE offers a range of 78 ETFs, offering exposure to local and international assets, some of which are traditionally difficult to gain access to.

An added benefit of ETFs is that those that meet the criteria can be the underlying investment in a tax-free savings account. In these accounts your investment returns are free of dividend tax, income tax on interest and capital gains tax. All profits go to you, the investor.

Last year, the JSE celebrated 20 years of ETFs listing on the exchange, showcasing their longevity, growth, and evolution. The ETF market has become an integral part of many investors’ portfolios with the objective of harnessing the potential of the stock market in an easy and costeffective way. This investment option continues to offer attractive and diverse opportunities for both existing and first-time investors.

The JSE is committed to making the exchange and investing more accessible and thereby helping South Africans establish a culture of investing. It is easy and quick to buy or sell ETFs on the JSE through a stockbroker trading account, or through an online ETF platform offered by a financial services provider. Your chosen provider is equipped to help you with any extra information you may need before making this investment choice. A list of JSE stockbrokers and some FSPs is available on the JSE website.

“An ETF provides your loved ones with a long-term investment and an opportunity to establish a foundation for wealth creation. Make a difference this year, with an investment that transcends the here and now,” says Hattingh.

To learn more about ETFs and how to start your investment journey, click here to visit the JSE website. – Supplied by the JSE

Editor’s note: Be aware that the performance of ETFs, like that of shares and unit trust funds that invest in shares, can be volatile over the short term. This type of investment is most suitable for saving over periods of five years or more.