Lesson 1 of 2 · 7 min read
What to look at
There are thousands of ETFs and most barely differ. Five points decide almost everything.
Which index, and how broad
This is by far the most important choice. A global index of thousands of companies across dozens of countries is a completely different thing from an index of one country or one sector. For a first ETF, broad is almost always the answer: you then don't need to know which region or sector wins, because you own them all. Anything narrower is an active choice, even when it comes through an index fund.
Cost and size
Ongoing charges for a broad global ETF now sit roughly between 0.1 and 0.25 percent. Pay more for the same basket and you're paying for nothing. Also check the fund's size: a very small fund can be wound up, and then you're paid out at a moment you didn't choose. A fund of hundreds of millions or more doesn't have that problem.
Distributing or accumulating
A distributing fund pays dividends into your account; an accumulating one automatically buys more with them. Accumulating is usually simpler, because you do nothing and in many situations there's no interim taxable moment. Distributing is pleasant if you genuinely want the income. For someone building up, accumulating is almost always the logical choice.
Stocky says
Accumulating funds are usually labelled 'Acc', distributing ones 'Dist'. It's in the name.
Remember this
- The index is the main choice. Broad means you don't have to predict.
- Don't pay more than 0.25 percent for a broad global ETF.
- For someone building up, accumulating is nearly always simpler than distributing.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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