Docs
Finance
ETF
Theory
ETF Advantages

ETF Advantages

💡 Take Away

Advantages of ETFs

  • Diversification: Invest in over 1,000 companies with a single global ETF.
  • Low Costs: ETFs have a cost-efficient structure with low expense ratios (TER).
  • Transparency: ETF holdings are always visible; no reliance on a fund manager’s strategy.
  • Automation: ETFs are automatically managed, following clear, rule-based strategies.
  • Liquidity: ETFs can be traded anytime during market hours.
  • Safety: Assets in ETFs are held as special assets (Sondervermögen) in Germany, protecting them from fund company bankruptcy.
  • Savings Plan Compatibility: Easily set up a monthly savings plan (Sparplan) through your broker.

Diversification: 1 ETF, Over 1,000 Companies

ETFs have an unbeatable advantage over other investment products: With just one ETF, you can invest in over 1,000 companies across different countries and industries. -> This eliminates the company-specific risk associated with individual stocks. In an ETF, individual securities are balanced by others in the portfolio.

Diversifikation- 1 ETF 1000 Unternehmen

Market Risk Market risk refers to factors that can affect the entire market. For example, changes in interest rates or economic policies can impact the stock market as a whole. When investing, you cannot avoid market risk, and it cannot be mitigated through diversification.

Significantly Cheaper Than Comparable Investment Products

Compared to all other investment products, ETFs have low fees.

  • The Total Expense Ratio (TER) for popular indices typically ranges from 0.05% to 0.7% per year.
  • In contrast, traditional actively managed funds usually charge 1.0% to 2.5% annually of the invested amount.

Costs of ETFs Compared to Other Investment Products:

Financial ProductAverage Costs
ETFs0.05% – 0.7% (TER - Total Expense Ratio)
Actively Managed Funds~1.85%
Stocks, Bonds, Commodities, etc.0.1% – 0.5% (account fees) + trading fees + commissions (varies by provider).
Certificates2% – 10%
Futures0.1% – 0.5%

Clear Rules – High Transparency

  • As an investor, you know exactly what happens to your money, how it is secured, and how the returns are used.

  • Your money is invested in the stocks of a specific index, protected as special assets (Sondervermögen), and your returns are either distributed as dividends or reinvested.

  • You can research who publishes the index and the criteria companies must meet to be included.

  • ETFs invest fully automatically in the stocks represented in the index. There is no management team that can make wrong decisions or be driven by emotions. The strategy remains consistent: Replicate the index as accurately as possible.

Easily Convertible into Cash

An investment is considered liquid if it can be quickly converted into cash by selling the security.

  • Stocks are highly liquid compared to other assets like commodities or real estate, as they can be traded daily during market hours.
  • Since an ETF consists of stocks, you can trade your ETF shares on the stock exchange just like individual stocks, making them highly liquid.

Protected from Insolvency

In Germany, assets invested in ETFs are classified as special assets (Sondervermögen). According to Section 92 of the German Capital Investment Code (KAGB), your assets are held separately from the operating assets of the ETF provider.

-> If the capital management company holding your assets goes bankrupt, the ETF assets are not part of the insolvency estate. This means that even if your ETF provider goes bankrupt, your money will be returned to your account.

Savings Plan Compatibility

If you want to invest in ETFs regularly, you can easily set up a savings plan (Sparplan). Through your broker, you can specify the interval (e.g., monthly) and the amount you want to invest. Some brokers even allow you to start with as little as €1 per month.

Reference