Top ETF 2024 – What you should look for when buying

More and more investors are investing in ETFs. They protect you from constantly losing money and thus protect you from inflation. They also help you build wealth over the long term. You may want to achieve a higher return or provide for your family financially. But how exactly do you find suitable ETFs? In this article, you’ll learn what makes a top ETF and how to choose one!

What is an ETF?

Perhaps you have also wondered how you can make money from stocks with less risk? ETFs offer an opportunity to benefit from attractive potential returns while keeping the risks comparatively low. In the following, we will discuss the definition, explanation, advantages and disadvantages of the investment.

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Return: 11% interest

Investors: over 30,000

1% cashback after 90 days

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Definition and explanation

ETFs are exchange-traded funds that are linked to an index. The fund tries to track its respective index as closely as possible and to achieve its average return.

All investors jointly contribute to a fund. These assets are invested in a specific investment, for example in commodities, equities, bonds or precious metals. In principle, a distinction is made between two different types of investment:

• Active fund management: A fund manager selects the securities in the fund with the aim of generating excess returns. In principle, this type of fund is characterized by higher costs.
• Passive fund management: There is no fund management behind passive funds. The fees are lower because no fund manager has to be paid. An excess return is not likely to be achieved by passive funds, since the goal is the average return of the respective index. ETFs are among the passive investments.

ETFs are an investment with a long-term investment horizon. They are particularly suitable for long-term goals: providing financially for your own family, saving for your children or providing for your retirement. The long period of time evens out fluctuations, takes advantage of the compound interest effect, and thus increases security.

Best ETFs – Advantages and disadvantages

In addition to the attractive potential returns offered by ETFs, exchange-traded funds offer further advantages.. How safe are ETFs?The security is comparatively high compared to other financial investments and can be further improved by the investor on an individual basis:

• Option of broad risk diversification: With the help of this investment, it is possible to significantly diversify your own portfolio. Many ETFs invest in several hundred to thousands of companies and can thus significantly reduce the risk of loss. It is important to invest in different companies and countries.
• Legal classification: ETFs are considered special assets. The money invested by investors is held separately from the fund company’s assets. If your broker or bank goes bankrupt, your assets are protected and you will get them refunded.

As mentioned earlier, the costs of passive and active funds differ. Active funds charge fees of between 1.5 and 2 percent of your assets. By contrast, the costs of passive funds, such as ETFs, are between 0.1 and 0.8 percent of the assets invested.

Another advantage is the transparency that is provided. The exact composition is regularly updated on the websites of the respective providers. Other information can also be viewed on the websites, ensuring transparency for investors.

When it comes to the question of “shares or ETFs”, the following aspect plays a role: ETFs are a suitable asset class for beginners. They are easy to understand, comparatively safe and offer beginner-friendly options. You can set up savings plans with just a small amount. With most providers, you can invest as little as one euro.

On the other hand, ETFs also have disadvantages and risks:

• Fluctuations: Like other securities traded on the stock market, they are subject to price fluctuations. These can be well offset with a long investment horizon. It is important not to be led by emotions and to follow your strategy even when prices fall.
• Themed ETFs: Themed ETFs invest in innovative areas that could contain trends of the future. They are more suitable for experienced investors, as speculation plays a major role here. These are often ETFs with high returns. Furthermore, they are investing in just one sector and are therefore not sufficiently diversified, which makes the investment even riskier.
• Counterparty risk: so-called swaps are exchange transactions between banks and fund companies. Synthetic ETFs are also swaps and involve risks. These are off-exchange trades involving a third party. Counterparty risk describes the risk that the contractual partner will become insolvent.

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Investors: over 500,000

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Best ETFs – How do I find the right ones for me?

What should I invest in to achieve my financial goals? There are a number of aspects to consider when choosing an ETF. Some of the points listed depend on the individual investor and are based on different preferences. Your investment should suit you and your goals.

Diversification

The term describes a strategy in which an investment and a portfolio are spread as broadly as possible. The aim is to cover many sectors and countries in order to be able to balance the risks in this way.

For example, if an investor has favored an industry that is performing worse than expected, their prices may fall sharply. If, on the other hand, the portfolio is broadly diversified and invests in a variety of sectors, poorer prices from other industries can be offset: the portfolio is better protected against fluctuations!

• Diversified and varied portfolios reduce the risk of loss
• Nevertheless, fluctuations are to be expected as these are exchange-traded funds.
• Diversification refers to both your portfolio as a whole and to specific investments.
• If you ensure sufficient diversification, exchange-traded funds are possibly the best risk-free investment.

Diversification is possible across different asset classes. However, ETFs make it particularly easy for you as an investor, as they themselves invest in a wide range of securities. Nevertheless, you should make sure that sufficient companies and countries are included. If you are interested in several exchange traded funds, it is advisable to avoid overlaps.

The distribution – accumulating and distributing ETFs

If companies make a profit, they can choose to pay it out to their shareholders in the form of dividends. The payment of such profits is at the discretion of the companies. ETFs make distributions in two different ways:

• Distributing ETF: Your dividends are paid out at fixed, regular intervals, for example once a year or once a quarter. The interest is transferred directly to your clearing account. This reduces the value of your exchange-traded fund.
• Accumulating ETF: With this option, you do not get interest paid out. Instead, your dividends are used to purchase new shares and are reinvested directly in the ETF. This way, all of the money stays in one fund.

Which is the better option depends on your preferences. The accumulating option is particularly suitable for investors who want to build up capital over the long term. Reinvested investments mean that you will not receive regular distributions into your account, but you will have more money invested, working for you and generating further returns.

Distribution ETFs are suitable for investors who want to benefit from regular income in order to use this money for other purposes. For example, you can use it to buy products or to invest the interest in other asset classes.

fund volume

Fund volume describes the total capital invested in a fund and available for investment. Investments with a low fund volume have an increased risk that the fund will be closed at some point or merged with another. This can result in increased costs for you if, for example, you wish to withdraw your money and invest it in another investment.

Savings plan or single investment?

You may be wondering whether you should buy an ETF or set up a savings plan. The right approach depends on your goals and how much money you have already saved to invest in an ETF.

You can speak of a one-time investment if you invest in an ETF just once. You can benefit if you have already saved a larger sum and decide to invest it in full. Your money will thus have more time to work for you and generate further returns.

If you decide on this option, the timing of your initial investment in your ETF plays an important role. Fluctuating prices can have a greater impact than with a savings plan with small monthly amounts. Please note the following:

• It can be difficult to find the optimal entry point if you want to invest a larger sum in ETFs.
• In this case, the investor may buy at a very high and expensive price.
• A poor timing can significantly reduce future returns.
• On the other hand, a long investment horizon can help to smooth out fluctuations and bad entry points.

A savings plan is suitable for you if you are a beginner or want to start investing regularly with small amounts. The timing of your entry is not important, as the transfers are made automatically. In addition, the ETF savings plan has the advantage that you only have to set it up once and your long-term wealth accumulation will continue on its own.

• Cost-average effect: you achieve the average purchase price because you will sometimes invest more and sometimes less.
• Low minimum investment: Most providers allow you to invest even very small sums. A monthly investment of just 25 euros can help you build up a fortune in the long term.
• Passive investing: Once set up, your savings plan will cost you nothing and is both passive and automated.

Note the costs and fees of ETFs

When you buy an ETF, you incur various costs. It is worth comparing providers and investments online to find the best and cheapest options. In particular, ongoing fees should be low so that your returns are not reduced.

An important key figure when buying ETFs is, for example, the TER, the Total Expense Ratio. This is the total cost ratio that shows you the annual costs of your ETFs. The following costs are included:

• custody fees
• license fees
• administrative costs
• selling expenses

Not included are other costs such as transaction costs, taxes, order fees, the spread or swap fees. In principle, active funds have a higher TER because they are managed by a fund manager who is paid by the higher costs. Passive funds such as ETFs are usually in the range of 0.1 and 0.5 percent annually.

Another type of cost you should consider is the so-called order fees. There are different models here. Often, there is a fixed amount per purchase that your provider will deduct from you. In other models, the amount of the fee depends on the amount invested.

In addition, a trading venue fee may apply. Prices vary depending on the selected trading venue. The amount is set by your custodian provider. If you opt for the direct dealer option, the costs often no longer apply.

ETF Alternative – Invest in P2P loans

In principle, ETFs are among the investments with the highest returns. If your fundamental goal is to increase your returns and build up a fortune in the long term, P2P loans could be interesting for you. P2P or peer-to-peer describes loans that are granted between two private individuals. A bank is not involved.

The elimination of the bank is associated with some advantages: on the one hand, a complex bureaucracy is eliminated. On the other hand, long waiting times can occur when private individuals want to apply for loans. As an investor, you have the opportunity to support private projects and significantly reduce the waiting times of interested parties, while also profiting from the interest.

These loans and the trade between private individuals are brokered by a P2P platform. These support investors by assigning credit ratings. This is how the riskiness of the loans is assessed. You can use this key figure to build a diversified portfolio and to rely on different credit ratings to increase the security of your investment.

One particular advantage of this investment is the attractive potential returns. The money that you lend to other private individuals is paid back to you with interest. This can result in high returns, which can help you to build up further passive income.

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Sustainable returns of 9-12% per year

Entry is possible from just €10 per credit bundle

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Conclusion: find a top ETF and benefit from long-term asset growth

When searching for ETFs, extensive research is necessary. After all, it is an investment with a long investment horizon. Ideally, you have a few decades to let compound interest work for you and get the most out of your assets.

When choosing your ETF, you should consider various aspects. Sufficient diversification across different sectors and countries helps to increase security. The fund volume should also be considered and should be at least 100 million euros.

In addition, some individual decisions play a role with ETFs, which can vary depending on the investor’s preference. You can opt for a distributing or accumulating variant. It is possible to make a one-time investment or to set up a savings plan to work on building up your wealth in the long term.

If you take the time to gather detailed information, select suitable ETFs and pay attention to the security of your portfolio, nothing will stand in the way of your long-term wealth accumulation! Learn more about “ETF Depot Comparison” or “Financial Sector ETFs” here.

FAQ – Frequently asked questions about top ETF