What is an ETF and why should you know about it?

ETFs (Exchange Traded Funds) are a popular form of investment that is suitable for both beginners and experienced investors. In this article, we explain what ETFs are, how they work and why they can be a good option for your investments.

What is an ETF?

An ETF is an exchange-traded fund that is traded on the stock exchange like a share. It replicates the performance of an index, such as the DAX or the S&P 500. An ETF contains a large number of shares or other securities and thus offers broad diversification.

How do ETFs work?

ETFs are traded like shares on the stock exchange. You can buy and sell them during trading hours. The price of an ETF fluctuates throughout the day based on supply and demand and the performance of the securities it contains.

Advantages of ETFs

1. Diversification: As ETFs contain a large number of securities, they offer broad diversification and reduce risk.
2. Low costs: ETFs generally have lower fees than actively managed funds, as they passively track an index.
3. Simplicity: ETFs are easy to buy and sell, and they offer a transparent and straightforward way to invest in the market.

Why should beginners invest in ETFs?

ETFs are particularly suitable for beginners, as they offer an easy way to invest in a wide range of shares without having to deal intensively with the selection of individual shares. They also enable cost-effective diversification and provide a good basis for long-term wealth accumulation.

Tips for getting started with ETFs

1. Find out more: Read about the different types of ETFs and their underlying indices.
2. Choose a broker: Open a custody account with an online broker that offers trading in ETFs.
3. Start with known indices: Invest in ETFs that track large and well-known indices such as the S&P 500 or the MSCI World.
4. Think long-term: ETFs are ideal for long-term investments. Hold your shares over a longer period of time to benefit from the compound interest effect.

With this information, you are ideally equipped to enter the market with ETFs and benefit from the advantages of this form of investment.