BlackRock’s People & Money report shows a 57% increase in the number of adults invested in an ETF since 2022, with the increase largely driven by younger investors aged 18 to 34.
It has been a record year so far for ETFs, with $1.4tn invested globally, but what are they? Read on to find out how ETFs work and how to get the most out of them.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.What is an ETF?
An exchange-traded fund (ETF) is a type of investment fund.
The main difference between ETFs and other types of funds, such as traditional open-ended funds, is that ETFs are bought and sold on a stock exchange.
As an investor, you buy shares in the ETF instead of directly buying units of the fund. This means you can invest at any time when the stock market is open, whereas funds can only be bought and sold once a day.
ETFs are usually ‘passive’, meaning they invest in line with an index, which is a list of companies such as the FTSE 100. There are, however, an increasing number of active ETFs, where a fund manager chooses specific investments.
Find out more: .Why have ETFs become so popular?
a more general trend towards cheaper passive investing. From the start of 2022 to mid-2024, retail investors withdrew £89bn from active investments and put £37bn into passive investments.Passive investments, and especially ETFs, are often cheaper than other types of funds in management fees, which are paid as a percentage of the investment.
The average fee for an ETF is 0.51% compared with 1.01% for an average mutual fund, according to Morningstar Direct.
Choosing a cheaper fund is one of very few ways to control how much money you get back from an investment and could potentially save you a significant sum.
Find out more:Why ETFs appeal to young investors
BlackRock's report showed 18 to 34-year-olds are 80% more likely to hold ETFs than over-35s.
The low cost of ETFs has been especially appealing to younger people investing for the first time. ETFs also don’t have the same minimum investment requirements as traditional funds, meaning you don’t need as much money to get started.
Invesco research found that investors over the age of 55 were less likely to invest in ETFs due to a lack of understanding of how they work.
Find out more: .Which platform is cheapest for ETFs?
Most platforms charge trading fees for investments that are bought and sold on a stock market, while some charge less to hold these types of investments in an account.
You could save hundreds – or even thousands for investors with large portfolios – by investing in ETFs on a cheaper platform.
The cost of investing in ETFs compared
Find out more: .ETF risks to watch out for
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