17 November 2021
Investing in ETFs: everything you need to know
Exchange-traded funds (ETFs) aren’t very popular among investors yet. Instead, beginner investors will usually start out buying and selling shares and bonds. But ETFs, also known as trackers, can be an interesting complement to your investment portfolio.
The number one rule for every investor is: don’t put all your eggs in one basket. Divide the risk and spread your investments over various shares and bonds. But that doesn’t have to mean buying and tracking hundreds or thousands of individual shares and bonds. That would be pretty impractical for many investors.
Instead, you could consider investing in ETFs. And over the past few years, the options available to you have exploded.
What is an ETF?
An ETF (short for exchange-traded fund) or tracker is a basket of shares and/or bonds that allow you to indirectly invest in an index. An index usually consists of tens, hundreds or even thousands of shares and/or bonds. They each have their own value, which is tracked by the ETF. Some of the most well-known indexes are:
- BEL 20: the shares index of the 20 largest listed Belgian companies
- S&P 500: the shares index of the 500 largest listed American companies
- MSCI World: a world-wide shares index comprised of shares from 23 countries.
In practical terms, a tracker or ETF tries to mimic the performance of an index as closely as possible. If the S&P 500 is up 12.2%, your ETF will increase in value by the same percentage. In this sense, an ETF is comparable to an investment fund. An important difference is the passive management of ETFs. Everything happens automatically, without the interference of fund managers, analysts or economists.
5 benefits of investing in ETFs
- A good spread
An ETF or tracker allows you to invest in all the components of an index at once. This makes it an easy way to diversify your investment portfolio.
- A wide range of choices
Many ETFs follow traditional indexes, but there are also trackers that follow certain themed, regional or sector indexes. And as with investment funds, there are distribution ETFs that pay dividends as well as capitalisation trackers that reinvest dividends into the company.
If you want to check which components the tracker invests in, you can do so easily at any time via your ING Investing app or Home’Bank.
Thanks to its passive management via algorithms, the costs of ETF investing are generally lower than those of actively managed investment funds.
- Immediately tradable during stock exchange opening hours
Trackers are traded on the stock exchange all day long. You’ll know immediately at what price you can buy or sell a tracker.
How do I buy the best ETFs?
The best ETF for you depends largely on your personal investment profile, which is related to the investment risks you can and want to take. Your profile determines in which so-called asset class you’re best off investing, like shares or bonds, as well as whether it’s best to get a tracker with short-term returns or one with a longer perspective.
Also, it’s important to carefully consider what you want to invest in. Will you buy ETFs within a well-known index? Or would you prefer to track a certain sector or region?
How are ETFs taxed?
Firstly, you pay a stock market tax on the purchase and sale of trackers. There are three different price brackets: 0.12%, 0.35% and 1.32%. The cost for your ETF depends on the country of registration and the type of tracker:
You’ll also pay a 30% withholding tax on any dividends paid by your trackers.
Some trackers are also subject to the Reynders tax (sometimes called the capital gains tax). This is a tax of 30% on the capital gains and profits of the fixed-income part (such as bonds) of your portfolio. It applies to your trackers if fixed-income investments make up 10% or more of the total investment value. In that case, you’ll be taxed on the entirety of the capital gains. If the fixed-income percentage isn’t known, it’s assumed that the tracker consists of 100% interest-bearing assets. Make sure to check beforehand whether the trackers you plan to buy are subject to this tax.
Start investing in ETFs today
With ING Self Invest, use the new ING Investing app or Home’Bank to buy and sell trackers (also 'ETFs') and invest online at low transaction rates. Get yours today to begin investing in shares, bonds and funds in real time.