What are the benefits of ETFs?

1. They’re simple.

ETFs let you invest in an entire market (whether shares in the UK or the US, gold, or something else), quickly and in a single transaction. And while other investment funds try (but often fail) to pick the best-performing shares, ETFs simply aim to track the performance of the market index. The Vanguard FTSE 100 ETF, for example, seeks to match the returns of the FTSE 100 index of the biggest UK shares such as Lloyds Bank and Tesco.

2. They offer a wide investment choice.

Whether you want exposure to an individual stock market like the US’s Nasdaq, or a global share index or region such as Europe or Asia, there are plenty of ETFs to choose from. There are also ETFs for tracking a wide range of bond indexes (covering UK gilts or US Treasuries, for example), as well as the price of gold or other commodities — even for bitcoin. Thematic ETFs, which have a specific focus such as climate change (eg. L&G Clean Energy ETF) or digitalisation (eg. iShares Digital Security ETF) have also multiplied in recent years.

3. They’re low cost.

ETFs have some of the lowest investment costs around, so more of what you make goes in your pocket rather than someone else’s. The annual management charge on some ETFs is as little as 0.05% — just one-twentieth of 1%, equivalent to 50p a year on a £1,000 investment — and there are lots of ETFs costing less than 0.3% a year.

4. There’s ZERO stamp duty to pay.

With most share purchases in the UK, investors have to pay 0.5% stamp duty. But with ETFs there’s no stamp duty. This tax saving gives your investment a head-start as you’re not losing half a percent of your money upfront.

5. They’re diversified.

ETFs often hold hundreds or even thousands of individual shares or bonds. This spread means you’re less exposed to falls in the value of any one holding, and reduces overall risk.

6. They can be bought and sold instantly.

Like shares, ETFs can be bought and sold without delay during stock exchange opening hours. This is more flexible than investment funds like unit trusts, which can only be bought or sold once a day through their fund manager.

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Important information

Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest.

This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.