Stock market: What are ETFs ?

More and more of us are investing in the stock market. It is rather logical since it is the investment that offers the highest return in the long term. But with all the products available, other than company shares, you can quickly get lost.

Today, I explain to you what ETFs are, otherwise known as trackers.

ETFs: exchange-traded funds

ETF comes from English Exchange Traded Funds, which translates in French as fonds négociés en bourse. They are issued by approved management companies and allow you to follow the performance of stock market indices such as the NASDAQ and the CAC40. These indices can be of a geographical and sectorial nature.

They group together a number of shares, which can be bought together under the name of the index, starting at a very low amount (about ten euros).

When you invest in ETFs, you have the choice according to a stock index (S&P500, NIKKEI, and others), an industrial sector (pharmaceutical, technological, and others), a region of the world (Europe, Canada, …) or you can buy the MSCI World index, which represents the global results of the world’s stock markets.

A broader investment than just buying shares

As the index groups a number of different stocks, it reduces the risks inherent in buying shares of a single stock. This does not mean that you cannot lose some of your capital. Investing in the stock market always involves some risk, no matter what you decide to buy.

But thepurchase of ETFs It also means that you immediately diversify your portfolio, since they are not made up of shares from a single group.

By doing so, you have more flexibility because you don’t have to read all the news about the different stocks you own. All you have to do is follow the index you bought. It’s also easier than picking stocks one by one and in the end you end up with a long-term stock market strategy, which is also great if the objective is to grow your capital. It will increase less quickly than buying stocks with more explosive potential, but you will also decrease your risk of losing part or all of your capital

MSCI World Growth: a safe and profitable choice

If you want to follow the path that pays the most, the NASDAQ index is the right choice. Over the past ten years, it has experienced the largest increase of almost 17%. It tracks the MSCI World Growth Index at 12.6 %. Its advantage is that it demonstrates a capacity to be more stable than the NASDAQ over the long term. Finally, on the third step of the podium is S&P500 at a little over 11%.

It is recognized that the performance of the world stock market is among the best with real estate. Over the last ten years, the NASDAQ has risen by an average of +16.74% per year, the MSCI World Growth by +12.58% per year and the S&P500 of +11.39% per year. Exceptional performance that can be captured through ETFs.

ETF and collective funds: what is the difference ?

If ETFs are similar to SICAVs (The difference is that there is no human management for ETFs, which reduces costs. In fact, ETF fees are rather low, at around 0.30%, far from the average 2% of funds. In addition to that, trackers are much more liquid (you can buy and sell an ETF in the same day, without any entry fee).

Finally, it should be noted that few mutual funds outperform the markets: 90% of active fund managers do not beat their benchmark over the long term ! In comparison, an ETF replicating the MSCI World index ensures you capture the performance of the world stock market, a good long-term strategy in our opinion.