Investing in ETFs (Exchange Traded Funds)

Publication date: May 19, 2025

Investing can be a challenging yet rewarding way to grow your wealth. While some people focus on individual stocks, more and more investors are choosing a simpler and more diversified approach: Exchange Traded Funds (ETFs). But what makes ETFs so appealing? And how can you benefit from the advantages they offer? In this article, we take a closer look at the world of ETFs. We explain what they are, why they are popular, and how you can get started. Whether you are a new investor or looking to diversify your portfolio, this article will give you the insights you need to understand why ETFs can be a smart choice for your investment strategy.

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What are ETFs?

ETFs (Exchange Traded Funds) are investment funds that are traded on the stock exchange just like individual stocks. What makes ETFs unique is that they contain a basket of different assets, such as stocks, bonds, commodities, or real estate. This allows investors to spread their risk. Instead of investing in a single stock or asset, an ETF can track a broader market or sector, which helps reduce the impact of poor performance by individual holdings.

Most ETFs follow a specific index, which means they aim to match the performance of that index. This often makes them a cost-efficient option for investors since they typically have lower fees than actively managed funds.

Example of a Popular ETF:

1. AEX ETF: iShares AEX UCITS ETF

ISIN: IE00B1XNHC34
Provider: BlackRock iShares
Total Expense Ratio (TER): 0.15 percent
Holdings: The iShares AEX UCITS ETF tracks the AEX index, which includes the 25 largest publicly listed companies in the Netherlands. These companies reflect the core of the Dutch economy and include major names such as ASML, Royal Dutch Shell, and Unilever.
Price structure: The ETF represents a fraction of the AEX index value (usually 1/10), which allows investors to gain broad exposure to top Dutch companies with relatively small amounts.
Dividend: The ETF pays out dividends once a year. For the Acc version, dividends are reinvested automatically.

Benefits of the iShares AEX UCITS ETF:

Diversification within the Netherlands: You invest in a basket of 25 of the largest companies in the Dutch market
Low costs: With a total expense ratio of 0.15 percent, this ETF offers a cost-efficient way to invest in the AEX
Accessibility: Because of the lower price per share, you can start investing with a smaller amount, which makes entry into the AEX more accessible

2. MSCI World ETF: iShares MSCI World UCITS ETF

ISIN: IE00B4X9L533
Provider: BlackRock iShares
Total Expense Ratio (TER): 0.20 percent
Holdings: This ETF tracks the MSCI World Index, which includes shares of companies from 23 developed markets around the world. The fund holds over 1600 companies, including Apple, Microsoft, and Nestlé.
Price structure: The ETF represents a fraction of the MSCI World Index value, which allows you to invest in a global portfolio of large companies with a relatively small amount.
Dividend: This is an accumulating ETF, which means dividends are reinvested automatically rather than paid out.

Benefits of the iShares MSCI World UCITS ETF:

Global diversification: The ETF gives access to leading companies from 23 developed countries, which means your investments are spread across different regions
Cost-efficient: The total expense ratio of 0.20 percent is low for a globally diversified fund
Easy to invest: Since the ETF represents a fraction of the index, you can gain diversified exposure to global markets with relatively small amounts

Investing in Specific Markets

Besides broad markets like the AEX or MSCI World, you can also use ETFs to invest in specific regions or sectors. Examples include ETFs focused on emerging markets in Asia or sectors such as technology, healthcare, and sustainability. This allows you to further diversify your portfolio and benefit from the growth potential in targeted areas.

What Are the Benefits of Investing in ETFs?

Diversification: ETFs offer broad exposure across different asset types such as stocks, bonds, or commodities. This reduces risk because losses in one sector can be offset by gains in another
Low costs: ETFs are usually passively managed and track an index, which means management fees are lower compared to actively managed funds
Accessibility: ETFs are traded on the stock exchange like regular shares, so you can buy or sell them at any time during market hours
Transparency: The holdings of an ETF are often public, which means you know exactly what you are investing in
Tax advantages: In many cases, ETFs come with tax benefits such as lower tax on dividends and reduced capital gains due to less frequent trading

What Are the Drawbacks of Investing in an ETF?

Limited control: Since ETFs are passively managed, you do not have control over the selection of individual holdings. You cannot choose to exclude or include specific stocks
Possibly lower returns: ETFs aim to follow the market, not beat it. This can be a disadvantage if you are seeking higher returns through active stock picking
Market volatility: ETFs are exposed to the same market swings as the underlying assets, which means their value can move sharply in volatile conditions

In general, ETFs offer more advantages than disadvantages, especially due to the risk spreading they provide. Looking at the performance of major indices like the AEX and historical trends, these types of ETFs tend to show long-term upward movement. They are appealing to investors who value simplicity, low costs, and diversification. Still, it is important to understand the specific features of each ETF and your investment goals to make a well-informed decision.

Are ETFs Suitable for Beginning Investors?

Yes, ETFs are often an excellent choice for beginners. They offer diversification, are relatively easy to understand, and carry less risk than buying individual stocks. They are also ideal for investors who do not want to trade daily or do not have the time or resources to monitor multiple companies.

Conclusion

ETFs allow investors to benefit from diversification, low costs, and easy access to a wide range of markets. Whether you are just starting to explore investing or are an experienced investor looking to reduce costs, ETFs can be a valuable part of your portfolio. By selecting the right ETF, you can take part in the performance of a broad set of companies or sectors with lower risk than investing in individual stocks.

Disclaimer: Investing involves risk. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' insights and experiences. Therefore, they are for educational purposes only.