Knowla / Roadmaps / ETFs
Assets · 5 phases · 21 topics
ETFs A path through exchange-traded funds: what they are, why their price stays close to the value of what they hold, what they cost, the main kinds from broad index funds to gold and crypto, and the products that behave differently from what the label suggests. It finishes with taxes, building a core portfolio and rebalancing.
Best after: Market Foundations
Read this first. Leveraged, inverse and derivative-income ETFs can lose money quickly and behave very differently from the index they refer to over more than a day. Product availability and tax treatment differ by country. This is education, not advice.
1 ETF basics What an ETF is and why its price stays close to what it holds.
Beginner What an ETF is An exchange-traded fund is a fund that holds a basket of assets and whose units trade on an exchange during the day, like a share. Beginner ETF versus mutual fund versus stock An ETF trades like a stock but holds many assets like a fund. A traditional mutual fund is bought and sold at one price per day, directly with the fund company. Intermediate Creation, redemption and why price tracks NAV Large institutions called authorised participants can create or redeem ETF units by swapping them for the underlying assets. This arbitrage keeps the market price close to the net asset value. Beginner Indices and how ETFs follow them An index is a rules-based list of assets, such as the largest listed companies in a country. An index ETF aims to hold those assets so that it earns about what the index does, less costs. 2 Costs and trading The costs inside the fund, and the costs of buying and selling it.
Beginner Expense ratio The expense ratio is the yearly fee the fund takes, shown as a percentage of assets. It is taken from the fund's value so you never see a bill. Intermediate Tracking error and tracking difference Tracking difference is how far the fund's return was from its index over a period. Tracking error measures how much that gap varies. Intermediate Bid-ask spread and premium or discount An ETF's market price can sit slightly above (premium) or below (discount) its NAV. The bid-ask spread is the extra cost of trading it. Beginner Trading ETFs sensibly Use limit orders, avoid the first minutes after the open and times when the underlying market is closed, and check the spread before you trade. 3 Kinds of ETFs What the main families hold and the risks that come with each.
Beginner Broad market index ETFs Broad index ETFs hold a large slice of a market, such as most listed companies in a country or in the world. They are the basis of many long-term portfolios. Intermediate Sector and thematic ETFs Sector ETFs hold one part of the economy, such as health care or energy. Thematic ETFs follow an idea, such as robotics or clean energy. Intermediate Bond ETFs Bond ETFs hold many bonds and most pay out the interest regularly. Unlike a single bond, most bond ETFs have no maturity date, so they do not return your principal on a fixed day. Intermediate Commodity and gold ETFs Some commodity ETFs hold the physical metal in a vault. Others hold futures contracts, which behave differently from the spot price. Intermediate Crypto spot ETFs A spot crypto ETF holds the actual coin, such as Bitcoin, with a custodian and offers it as a share. Whether such ETFs exist, and who can buy them, depends on the country. 4 Leveraged, income and note products Products where the label and the behaviour can diverge.
Advanced Leveraged and inverse ETFs These funds aim to deliver a multiple (such as 2x or 3x) or the opposite (-1x) of an index's return for a single day. Over longer periods the result can differ a lot from the multiple you expect. Advanced Optional Covered-call and derivative-income ETFs These funds hold assets and sell options on them to collect premium, which is paid out as high distributions. In return, they give up some of the upside. Intermediate ETNs versus ETFs An exchange-traded note is an unsecured debt instrument from a bank, which promises to pay a return linked to an index. It holds no basket of assets for you. Intermediate Optional Reading an ETF's documents Before buying an unfamiliar ETF, read its fact sheet and prospectus or key information document (the exact name depends on the country). They state what it holds, how it works, what it costs and what can go wrong. 5 Taxes, portfolio and upkeep Putting ETFs together into a plan and keeping it on track.
Intermediate How ETFs are taxed Tax on ETFs depends on your country, the fund's domicile and the type of account. Distributions, sales and sometimes unrealised gains can all be taxable events. Beginner Asset allocation Asset allocation is how you divide money between stocks, bonds, cash and other assets. It reflects your goals, time horizon and tolerance for losses. Intermediate Building a core portfolio A core portfolio is a small number of broad, low-cost funds that cover most of what you want to own. Optional satellite holdings sit around it. Intermediate Rebalancing Over time, winners grow and your mix drifts from your target. Rebalancing moves it back by selling some of what grew and buying what lagged, or by directing new money. Your ticks are saved in this browser only. There is no account behind them, so clearing site data clears them.
Education, not financial advice. Nothing here says what to buy or sell, and rules and product availability differ by country. All roadmaps .