Here are some of the key advantages of investing in ETFs.
- Firstly, it provides diversification. This allows an individual to effectively gain exposure to a group of equities, therefore minimising the risk. For example, the Vanguard Total Stock Market ETF (VTI) tracks the performance of United States (US) Total Market Index. This includes companies such as Apple, Microsoft, Amazon and Google.
- Secondly, it has lower fees. Unlike active investing strategy which refers to ongoing buying and selling of investments to exploit profitable conditions – which also means that there are additional expenses to constantly purchase, sell and manage them; ETFs are passively managed and they are usually invested based on a long-term approach rather than short-term gains. ETFs also have lower expense ratio as compared to other managed funds.
- Lastly, it provides great liquidity. This refers to the degree to which an investment can be quickly bought or sold in the market without affecting the price. This allows us to provide you with the flexibility to withdraw when required. Nevertheless, we strongly encourage our users to minimize withdrawals to maximize profits through compound interest.
While ETFs have disadvantages as compared to selecting and purchasing individual stock by yourself, the advantages are more beneficial for an individual who would like a fuss-free solution for investing.