“Compound interest is the eighth wonder of the World. He who understands it earns it... he who doesn’t pays it”
Albert Einstein.
Exchange Traded Funds (ETFs) are shares that track the value of an underlying fund or index. Millen Capital use ETFs for passive investment within a client’s portfolio.
The first ETF–type fund was launched in the US in 1993. Since that time, global ETF assets under management have grown rapidly. Both professional and retail investors have discovered ETFs’ unique combination of benefits, such as liquidity, transparency and their significant cost advantages. For example many ETFs have total expense ratios (TERs) of between 0.2% – 0.7%, compared to active fund managers TERs of up to 2.5%. The difference in charges over time can have a significant effect on the growth of your investment.
Demand for ETFs globally has surged in recent years as the message of cost–effective, flexible and truly diversified investment products has struck a chord with investors – during both bull and bear markets.
Embarking on a cost reduction programme may not seem that exciting, but do not under estimate the stakes.
The example below shows the difference between an additional 1% in charges can make to investment growth over a ten year period.
£100,000 invested over 10 years at 5% compounded will be worth £162,889.46
£100,000 invested over 10 years at 6% compounded will be worth £179,084.77
The difference in growth is £16,195.31 (£79,084.77 – £62,889.46) or 26%!
Currently global ETF assets amount to $1 trillion, with no fewer than 1,499 ETFs listed across global stock markets. ETFs also offer professional investors the reassurance of high levels of liquidity, enabling the rapid implementation of a comprehensive range of investment strategies.
