Active and Passive Investing - ETF's



Index trading:

Indexes shows us how the markets are performing as a whole.


Why are Index funds so popular with beginner investors?


Solid returns

Such as the S&P 500’s “long-term” record of about 10 percent annually.

Diversification

One share on the S&P 500 provides ownership in hundreds of companies, while a share of Nasdaq-100 fund offers exposure to about 100 companies.

Lower risk

Investing in an index fund is lower risk, that doesn’t mean you can’t lose money but the index will usually fluctuate a lot less than an individual stock.

Low cost

Index funds have a low expense ratio.



How to select the right index to invest in?


Location


Follow the news and economy headlines and you will clearly see where the worlds growing countries are. A broad index such as the S&P 500 or Nasdaq-100 owns American companies, while other index funds might focus on France or Asia-Pacific. See India at 6.98%




According to research these are the best countries to invest in:


Vietnam

Vietnam has avoided every single recession over the past 30 years. Only a handful of countries in the entire world have managed to achieve this feat.

Cambodia

Having consistently achieved a GDP growth rate averaging above 7%.

Singapore

Singapore grew from a small trading post into what is arguably Asia’s most important financial centre in barely more than a few decades. Ranking among the wealthiest nations on the planet.

Malaysia

Naturally benefits from its neighbour’s economic growth Singapore.


Business


Which industry is the index fund investing in: Property, Technology….?


Market opportunity


What opportunity does the index fund present? How does the companies fit in with future prospects and visions the world is moving towards? Some funds invest in high-yield stocks while others want high-growth stocks.


Let’s look at emerging industries to invest in:


- Cloud Computing

- Biotechnology

- Data Analytics

- Artificial Intelligence

- Real Estate

- Green Energy

- Pharmaceuticals

- IoT Solutions

- Cybersecurity

and the list continues…


Long-term performance


You would like to look at the index performance over a period of about 5 – 10 years. Nothing is guaranteed but this will give you a good idea how the index is performing.



Here are a few top indexes to look at.


Find a list of the index holdings to view the companies you will be investing in a specific index.


SPDR Dow Jones Industrial Average ETF – Overall Best Index Fund South Africa

JSE Top40 Index – Overall Best Index Fund to Invest in South African Stocks

iShares Core FTSE 100 UCITS ETF – Best Index Fund for UK-Listed Stocks

iShares Core S&P 500 UCITS ETF – Best Index Fund for a Diversified Portfolio of US Stocks

iShares NASDAQ 100 UCITS ETF – Best Index Fund for a Technology Stocks

Xtrackers Nikkei 225 UCITS ETF – Best Index Fund for Japanese Stocks

iShares Russell 2000 ETF – Best Index Fund for Investing in Small US Companies

Vanguard FTSE Europe ETF – Best Index Fund for European Stocks

iShares China Large-Cap ETF – Best Index Fund for Investing in the China Stock Market

Horizons Marijuana Life Sciences Index ETF – Best Index Fund to Invest in the legal Marijuana Industry


The fund’s expenses are huge factors:


Mutual funds tend to be less tax-efficient than ETFs. At the end of the year many mutual funds pay a taxable capital gains distribution, while ETFs do not. Many mutual funds have a minimum investment amount for your first purchase where many ETFs have no such rule. Compare different fund expense ratios.


When is a good time to buy index funds?


The right time to buy into an index fund is always now, this is a long-term investment, the market tends to rise over time, as the economy grows and corporate profits increase so will the share price. Here time is your best friend, because it allows you to compound your money, letting your money make money. The earlier you start in your life to invest the greater the reward will be.


Experts recommend adding money to the market regularly to take advantage of dollar-cost Averaging and lower risk. This is the best way to start investing, you will not be entering and exiting the market but adding to your investment for years to come.


Let’s look again at the simple set of rules for investing.


If there is one man’s investment strategy that makes sense and is so simple to follow it is Warren Buffet’s investment pillars.


The investing pillars:

  • Understand the business you invest in, how is it relevant in the times you are investing in and what role will it play in the future?

  • Does it have an advantage over other companies in the same sector?

  • How does management run the company, look at integrity and talent?

  • The price should be right (margin of safety), how much sales can the company loose before it starts to break even or make a loss?


Investing Factors:


We deal with economic factors on a constant basis, this influences our decision making and force us to dig deeper into our purpose as an investor and prevent us from acting on our emotions. Even experienced investors still fall in the emotional trap.


Overvalued Stocks:


Active investing

When you find yourself in a situation where stocks are overvalued do not dive in and buy these overvalued stocks. Unfortunately, the market is full of overvalued stocks right now. Keep your money you wanted to invest in cash and buy the stock at the right time. This is not always ideal but, in some situations, you have to weigh up your options “You do not make money when you buy and you don’t make money when you sell. You make money when you wait.” Charlie Munger.


You don’t need a lot of investments to do very well, only n few quality investments bought at the right price. Stay patient till the market offers you the right opportunity. I remember waiting 3 months before I bought a stock at the right price, do not let your emotions overpower you to buy overvalued stocks and having to deal with those “do I buy the dip questions”.


Passive Investing

Passive investing is where you buy in a broad portfolio and hold for a very long period of time. Index fund investing is an example of passive investing, it is cheaper, less complex and good after-tax results over medium to long term. With this investment strategy you do not worry about entering the market at the right time. You invest your total amount over a period into a target asset in an attempt to reduce volatility. When buying into a good Index fund you will gain between 8 – 10 % per year.


Inflation

Buy stocks in businesses with the following characteristics:

  • They can increase the price of the product without fear of losing market share or unit volume, companies like Apple, Coca-Cola, people won’t start using a different product. They have the competitive advantage.

  • Companies that can generate more cash with minimum additional investment. These companies will have the opportunity to grow with little capital like Facebook where you only increase the number of adds.


Interest Rate


With inflation rising a lot of funds move from stocks to bonds and the valuations come under pressure. Here companies with cash will be king and the banking sector will benefit.






The factors we deal with in the economic world will always be a part of our investment strategy and we will always experience the good and the bad in the markets. In the long-term though, with the right knowledge and action, we will be victorious!!


Happy Investing.


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