I remember when I started looking into investing, it didn't take a long time for me to feel somewhat overwhelmed. Bonds, stocks, property, unit trusts, ETFs and so the list goes on. It's incredibly intimidating and I know a lot of people who simply never started investing because it was too complicated - you want to avoid this!
Don't feel like reading? Okay, click here to download the cheat sheet.
An ETF (not EFT) is an exchange-traded fund, and I've done a full what is an ETF blog post previously which I recommend you read. But essentially, an ETF is a basket of assets that you can buy into. For example, the S&P500 ETF is a vehicle that holds 500 of the top companies in the United States. If you buy this ETF, you get a piece of each of those companies which is less risky than trying to pick single stocks. Another thing that's very attractive when it comes to ETFs is that the fees are usually really low compared to other options that are available.
Full disclosure, 75% of my investments are in ETFs and have been for many years and I don't foresee myself changing this any time soon. I love ETFs.
Now, investing is confusing when it comes to asset classes (stocks, unit trusts, bonds, property, ETFs, etc.) but narrowing this down to ETFs doesn't make it that much easier because there are lots of different ETFs and this becomes complicated again, sadly. You can have an ETF that focuses on property or stocks or really anything, and then you have local and international, and so the list goes on. It was this complication that lead me to put together this ETF cheat sheet.
The aim of this cheat sheet is to expose you to some of the ETF options available to South Africans and break them down into different asset classes. Let's look at an example, the first blue row says, "S&P500 ETFs" and lists 3 ETFs that would allow you to buy into the S&P500. There are three different ones: CoreShares S&P 500 ETF, the Satrix S&P500 ETF, and the Sygnia Itrix S&P500 ETF.
Okay, so I want to invest in the S&P500 and I see 3 options but which one do I choose? Well, that boils down to your personal requirements, and you might want to consider:
The best way to handle this is to click through to the ETFs website and read about the ETF and the company. Each one should have what's known as an MDD (minimum disclosure document) or fact sheet, this is usually a PDF file that gives you everything you need to know about the ETF in question. You need to download these sheets and read them in order to understand what you're actually investing in.
Here's an example of an MDD for Satrix's S&P500 ETF:
Nobody can simply tell you which one to go with, I can save you some time by sharing the names of popular ones but you need to decide which one or ask your financial advisor for assistance.
Now that we understand what an ETF is, how to go about deciding which one/s to go for and how to get an MDD, let's look at the cheat sheet that I've created. Below is a screenshot of what the cheat sheet looks like, you can download it in PDF format by clicking here.
The sheet covers a number of market segments:
This means that you could go about creating a fairly well-diversified portfolio by buying into a handful of these ETFs. Being diversified means you're essentially taking on less risk because as one market sector goes down, another could go up rather than being in only 1 ETF and when things go down, your whole portfolio goes down. Of course, less risk means less return usually so you will need to weigh things up and potentially seek professional assistance in understanding what's best for you because we're all different.
When I talk about a diversified portfolio, I'm talking about this:
As you can see, the investments are split up into a number of asset classes: stocks, bonds, gold, property, etc. This means that if one class isn't doing too well, another might be and that holds things in a balanced manner. As someone who's not looking to actively manage their portfolio, constantly learn, and doesn't want a lot of risk, ensuring that you're diversified is an important aim.
What I want to say before ending this post is that you need to move slowly, do your research and understand as much as you can. People should never invest in something they don't understand, empower yourself to make decisions you believe in and then pull the trigger.
Which is my, personal, favourite ETF? The Satrix MSCI World ETF.
