Chapter 9 – Exchange-Traded Funds / Indices

Another “passive” option is exchange-traded funds (ETFs), which may be listed on a stock exchange and traded in the same way as you trade shares. Buyers purchase shares in the fund which trades on an exchange. Like index-tracking funds, ETFs aim to replicate the performance of a chosen index – for example, the Standard & Poor’s 500 in the United States or the FTSE All-Share in the UK. Many ETFs invest directly in the components of an index, such as gold. They are bought through a stockbroker, so there are dealing charges to pay but, in these days, brokers do not charge high fees for placements in ETFs, although it’s important not to make smaller investments amount since many brokers and banks have minimum fees, and these can add up quickly each time a ‘small’ investment is made.