- ETFs (exchange traded funds) are a popular financial innovation that are bought and sold like stocks
- They appeal to investors who don't believe in active management and prefer to spread their investments across different securities
- The speaker uses a mix of active and passive investing, using ETFs for the passive part of their portfolio
- They own individual stocks that have had varying levels of success, with some performing well and others resulting in a total loss
- The speaker also owns 6 ETFs, which have had more modest swings in value and have performed in line with the overall market
- The S&P 500 ETF is highlighted as an example, with big names like Microsoft, Apple, Amazon, and Facebook as top holdings
- The expense ratio for this ETF is low at 0.07% and it follows an optimized methodology
- The Emerging Markets ETF allows investment in companies from countries like China, Korea, Taiwan, India, and Brazil, with a higher expense ratio of 0.75%
- The Clean Energy ETF focuses on the clean energy sector and holds all index securities rather than an optimized sample
- Both active and passive investing have risks and it's important to be aware of the potential to lose money.

What is ETF investing? What is an ETF and how does it work? Let’s explore the potential of ETFs, and look at specific examples. As this chart of the growth in total net assets of ETFs shows, it is one of the most popular financial innovations in recent decades.

⏱️TIMESTAMPS⏱️
0:00 ETF introduction
0:09 ETF popularity
0:19 ETF meaning
0:51 Active investing vs passive investing
1:29 Portfolio of individual stocks
2:10 Portfolio of ETFs
2:49 ETF example: S&P 500 ETF
4:27 ETF Total Expense Ratio example
5:11 Replicated ETF example

What does the acronym ETF mean? An #ETF is an Exchange Traded Fund. Exchange traded means that ETFs are bought and sold like stocks. They are continuously traded while stock markets are open, and you can invest in them through a broker account. Fund means that you are spreading your investment money into baskets of many different securities. ETFs appeal to investors who don’t believe that active management is helpful to the performance of their investments.

Personally, I use a mix of active investing and passive investing, in about a 50/50 split. Active investing is also called “stock picking”: trying to outperform the overall stock market by buying individual stocks that you strongly believe in. Passive investing is the opposite: not believing you can outperform the stock market, and choosing to just “follow the index”. In my case, I use ETFs for the passive part of my portfolio. I am not suggesting that you should do the same, but want to be fully transparent about my actual investment choices.

Here’s the list of individual stocks that I own. Two of them have been real superstars over the years (one in biotech, the other in software): they have gone up 10 times in value since I bought them! Two others have been a total loss: the companies went bankrupt and shares in the companies are now worthless. For the other stocks in my investment portfolio, some share prices are down since I bought them, others are up. Thanks to the amazing performance of my two superstar stocks, I have done pretty well overall, but my “average performance” is really a mix of a few extremes. Active investing can feel like a rollercoaster ride!

On the passive investment side, I own six ETFs. ETFs have scale, which is something that most individual investors lack. Most of the ETFs that I invested in consist of equity (stocks), one of them of bonds. As these are “baskets” of securities, the swings in value have been more modest, and the funds have gone up between 15% and 85% in value, in line with the overall market in the last five to ten years. Just like individual stocks, ETFs can rise or fall in price, and may or may not pay a dividend.

Want to track the total return on your stock portfolio (share price increase/decrease plus dividends received), then check out the easy-to-use online portfolio tracker called Sharesight: https://www.sharesight.com/thefinancestoryteller/

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and #investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers finance training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

Let's explore the potential of ETFs, and look at specific examples.

As this chart of the growth in total net assets of ETFs shows, it is 1 of the most popular financial innovations in recent decades.

Exchange traded means that ETFs are bought and sold like stocks.

They are continuously traded while stock markets are open, and you can invest in them through a broker account.

Fund means that you are spreading your investment money into baskets of many different securities.

ETFs appeal to investors who don't believe that active management is helpful to the performance of their investments.

Personally, I use a mix of active investing and passive investing in about a 50-50 split.

Active investing is also called stock picking, trying to outperform the overall stock market by buying individual stocks that you strongly believe in.

Passive investing is the opposite, not believing you can outperform the stock market, and choosing to just follow the index.

In my case, I use ETFs for the passive part of my portfolio.

I am not suggesting that you should do the same, but I want to be fully transparent about my actual investment choices.

Here's a list of individual stocks that I own.

2 of them have been real superstars over the years, 1 in biotech, the other in software.

They have gone up 10 times in value since I bought them.

2 others have been a total loss, the companies went bankrupt, and shares in the companies are now worthless.

For the other stocks in my investment portfolio, some share prices are down since I bought them, others are up.

Thanks to the amazing performance of my 2 superstar stocks, I have done pretty well overall, but my average performance is really a mix of a few extremes.

Active investing can feel like a rollercoaster ride.

On the passive investment side, I own 6 ETFs.

ETFs have scale, which is something that most individual investors lack.

Most of the ETFs that I invested in consist of equity, stocks, 1 of them of bonds.

As these are baskets of securities, the swings in value have been more modest, and the funds have gone up between 15% and 85% in value, in line with the overall market in the last 5 to 10 years.

Just like individual stocks, ETFs can rise or fall in price, and may or may not pay a dividend.

Let's get more specific, and look at the S&P 500 ETF.

The S&P 500 is 1 of the most commonly followed equity indices, and many consider it to be 1 of the best representations of the US stock market.

The top holdings in the S&P500 ETF are big names like Microsoft, Apple, Amazon, and Facebook.

And yet, the top 10 holdings form just over 20% of the total.

The total expense ratio for this ETF is just 0.07%.

Total expense ratio is basically the management fee plus other expenses, expressed as a percentage of the fund's total net asset value.

The distribution type is quarterly, which means that income received by the ETF, such as dividends, gets passed on to investors on a quarterly basis.

The methodology is optimized, as opposed to replicated.

Optimized means that the ETF has taken a bit of a shortcut by not holding each and every of the index securities, but only a subset.

Replicated would have the ETF holding all index securities in the same weight as the index.

The product structure is physical, as opposed to synthetic.

Physical means the fund buys the actual underlying securities in the index.

Synthetic means that the fund gains exposure to the securities by buying derivatives, such as swaps, which would introduce counterparty risk.

The Emerging Markets ETF provides an opportunity to invest in a broad range of emerging markets companies based in countries such as China, Korea, Taiwan, India and Brazil.

An interesting fact here is that the top 10 holdings consist of individual companies such as Alibaba, Tencent, TSMC and Samsung, but also an ETF within an ETF.

The total expense ratio is 0.75%, which is higher than the S&P 500 total expense ratio of 0.07%, but still much lower than trying to construct a do-it-yourself emerging markets investment portfolio.

The Clean Energy ETF focuses on a specific industry sector, rather than replicating a diversified index.

The Clean Energy ETF invests in 30 global companies.

This is a replicated ETF, it holds each of the index securities, rather than just an optimized sample.

Active investing in individual stocks, and passive investing through for example ETFs.

Both can be exciting, and could make you financially wealthier.

Both have risks, always be aware that you could lose significant amounts of money when investing.

Want to learn more about business, investing and finance?

Then subscribe to the Finance Storyteller YouTube channel!


Speaker 0: What is ETF investing? Let's explore the potential of ETFs, and look at specific examples. As this chart of the growth in total net assets of ETFs shows, it is 1 of the most popular financial innovations in recent decades. What does the acronym ETF mean? An ETF is an exchange traded fund.

Exchange traded means that ETFs are bought and sold like stocks. They are continuously traded while stock markets are open, and you can invest in them through a broker account. Fund means that you are spreading your investment money into baskets of many different securities. ETFs appeal to investors who don't believe that active management is helpful to the performance of their investments. Personally, I use a mix of active investing and passive investing in about a 50-50 split.

Active investing is also called stock picking, trying to outperform the overall stock market by buying individual stocks that you strongly believe in. Passive investing is the opposite, not believing you can outperform the stock market, and choosing to just follow the index. In my case, I use ETFs for the passive part of my portfolio. I am not suggesting that you should do the same, but I want to be fully transparent about my actual investment choices. Here's a list of individual stocks that I own.

2 of them have been real superstars over the years, 1 in biotech, the other in software. They have gone up 10 times in value since I bought them. 2 others have been a total loss, the companies went bankrupt, and shares in the companies are now worthless. For the other stocks in my investment portfolio, some share prices are down since I bought them, others are up. Thanks to the amazing performance of my 2 superstar stocks, I have done pretty well overall, but my average performance is really a mix of a few extremes.

Active investing can feel like a rollercoaster ride. On the passive investment side, I own 6 ETFs. ETFs have scale, which is something that most individual investors lack. Most of the ETFs that I invested in consist of equity, stocks, 1 of them of bonds. As these are baskets of securities, the swings in value have been more modest, and the funds have gone up between 15% and 85% in value, in line with the overall market in the last 5 to 10 years.

Just like individual stocks, ETFs can rise or fall in price, and may or may not pay a dividend. Let's get more specific, and look at the S&P 500 ETF. The S&P 500 is 1 of the most commonly followed equity indices, and many consider it to be 1 of the best representations of the US stock market. The top holdings in the S&P500 ETF are big names like Microsoft, Apple, Amazon, and Facebook. And yet, the top 10 holdings form just over 20% of the total.

Let's review the small print. The total expense ratio for this ETF is just 0.07%. Total expense ratio is basically the management fee plus other expenses, expressed as a percentage of the fund's total net asset value. The distribution type is quarterly, which means that income received by the ETF, such as dividends, gets passed on to investors on a quarterly basis. The methodology is optimized, as opposed to replicated.

Optimized means that the ETF has taken a bit of a shortcut by not holding each and every of the index securities, but only a subset. Replicated would have the ETF holding all index securities in the same weight as the index. The product structure is physical, as opposed to synthetic. Physical means the fund buys the actual underlying securities in the index. Synthetic means that the fund gains exposure to the securities by buying derivatives, such as swaps, which would introduce counterparty risk.

The Emerging Markets ETF provides an opportunity to invest in a broad range of emerging markets companies based in countries such as China, Korea, Taiwan, India and Brazil. An interesting fact here is that the top 10 holdings consist of individual companies such as Alibaba, Tencent, TSMC and Samsung, but also an ETF within an ETF. The total expense ratio is 0.75%, which is higher than the S&P 500 total expense ratio of 0.07%, but still much lower than trying to construct a do-it-yourself emerging markets investment portfolio. The Clean Energy ETF focuses on a specific industry sector, rather than replicating a diversified index. The Clean Energy ETF invests in 30 global companies.

This is a replicated ETF, it holds each of the index securities, rather than just an optimized sample. Active investing in individual stocks, and passive investing through for example ETFs. Both can be exciting, and could make you financially wealthier. Both have risks, always be aware that you could lose significant amounts of money when investing. Want to learn more about business, investing and finance?

Then subscribe to the Finance Storyteller YouTube channel! Thank you.

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What is an ETF