Exchange Traded Funds

In recent years, funds have become an important investment product for newcomers, which enjoys great popularity worldwide.

But not only newcomers to the market rely on Exchange Traded Funds (ETFs) – even Warren Buffett is an avid follower of the index funds.
American stock-market guru Warren Buffett has earned over $ 60 billion in private wealth for more than 60 years. And that’s because he outperformed the US market’s index fund for years through his equity investments. Buffett has now decreed that his wife after his death, a large part of his assets on the listed index fund S & P 500 sets. For years, the big investor has been in favor of the “Exchange Traded Funds” (ETFs). For him, the modern form of investment is particularly promising because it is easier and, above all, cheaper for investors than actively managed funds The ETFs have long since begun their triumphant advance on the international financial markets.

Since the year 2000 ETFs are also tradable on the German stock exchange via the secondary market. In the meantime, the assets managed in the index funds in Germany have grown to more than € 250 billion; More than 2.5 trillion euros are invested worldwide in the approximately 5,000 different ETFs. Although significantly higher sums of money are invested in actively
managed investment funds, ETF assets are growing rapidly at an average of 20 percent per year – a clear sign that the importance of passive savings plans is steadily increasing ETFs are fundamentally different from traditional mutual funds: with actively managed funds, the investor gives the responsibility to a fund manager who is trying to achieve the most profitable result. An ETF maps the index he describes one to one. 

For example, if the DAX rises by three points, the associated ETF will gain almost the same amount; If the DAX loses three points, the ETF also falls. The ETF price deviates only marginally from the index due to the so-called “tracking error”. This is simple but ingenious because while the fund manager can make the wrong decisions when choosing the investment
and thus outperform the index, an ETF always moves in parallel to the index shown – even though he can never beat this, of course.

Often, ETFs are not only more successful than mutual funds, they also have significantly lower administration costs. Replicating an index involves much less effort than managing a classic fund. While an investor in active investment funds has to calculate ongoing transaction costs of one to three percent per year for ETFs, only a fraction of these costs are due. Issue or
redemption premiums and performance fees are usually not charged for index funds, but are commonplace for mutual funds. 

The low cost is just one of the reasons why ETFs are attracting more and more investors. The passively managed funds are also much more transparent than mutual funds. For an active fund, the composition of the securities and bonds and the approach taken are not necessarily directly recognizable.

Listed ETFs are particularly suitable for private investors who are looking to invest their money over the long term and continuously increase their profits. In addition, ETFs are easy to manage and a cost-effective way to age a bit. However, as with all investment products, investors should ask what they expect their investment and how willing they are to risk If you are looking for a low-risk and uncomplicated portfolio investment. Here’s where ETFs can help you!