Is it a good idea to invest in ETFs? ‘Light threshold, but not without risk’ | NOW

You may have heard of people investing in ETFs. But what are these exactly? Why would you choose this? And what are the risks? Joost Schmets from the Association of Shareholders (VEB) and financial planner Ramón Wernsen explains.

The number of private investors is still growing. The Dutch Financial Markets Authority (AFM) saw the number of investing households rise to almost two million in 2021. The need for more returns (savings do not pay off) was the main reason for starting. However, investing can seem very complicated for beginners due to all types of stocks and prices.

What is an ETF?

Investing in ETFs is becoming increasingly popular, says Joost Schmets from VEB. “The costs and risks are low, the purchase is easy and you do not have to worry much about it.” Financial planner Ramón Wernsen also sees in his work that more and more of his customers are choosing this way of investing. But what are ETFs really?

“An ETF is actually a collection basket that contains multiple stocks that belong to an index.”

Joost Schmets, Securities Investors Association

An ETF stands for Exchange Traded Fund. “An ETF is actually a collection basket that contains multiple stocks that belong to an index,” Schmets said. “An example of such an index is AEX, which is filled with the 25 largest and most traded companies in the Netherlands. Companies such as Heineken, Shell and Philips belong to AEX.”

An ETF is also known as an index tracker, he continues. The ETF ‘tracks’ or follows an index and tries to achieve the same return. If you invest in this ETF, you invest in all the companies in that index in one go. This spreads your investment as much as possible and you run less risk of loss. “

‘You do not have to be an expert’

But why not just buy shares in the companies in AEX yourself? “It’s possible,” Wernsen explains. “Only if you want one share of all those companies, you often lose thousands of euros. With an ETF, you can easily invest in several companies without having to cost a lot of money. There are now more than a thousand index trackers to choose from. you can buy and sell them all day long as long as the stock market is open. “

Iris Newman (37) from Eindhoven invests in these ETFs. “I have a young family and my time is limited. By investing in ETFs, you do not have to be an expert and analyze stocks one by one. Instead, I spread my investment over many companies. It reduces the risk.” “It’s also available, less hassle and a great alternative to saving,” she adds. “It does its thing, and it appeals to me.”

There is no such thing as a free investment: pay attention to the cost

She advises other investors to take a closer look at the costs. “There are parties that claim that you can invest in ETFs for free with them. That is not true. There is no such thing as a ‘free’ investment. You always pay administration and transaction costs. Or they also charge costs. for something else that you pay at first glance not immediately. “

Werns also warns people to keep calculating costs properly. “Suppose you have 1 percent a year in administrative expenses. At first glance, it works a little. But suppose you achieve a return of 7 to 8 percent in thirty years. Then that 1 percent is converted into 15 percent of your achieved return. It’s a huge loss of your profits. “

“Even if you spread your risk optimally, you can lose money if the price falls. You always take a risk. ”

Joost Schmets, Securities Investors Association

Schmets emphasizes that there are risks, as with any type of investment. “Even if you spread optimally, you can lose money when the price falls. You always take a risk.” He also explains that investing in ETFs is not a short-term plan. “Do not put in money that you will need in a few months. Chances are you will have less than what you started with. With this type of investment, you can build wealth in the long run. If you are patient enough, you have it. “

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