Invest for the future with ETFs

A report published by the Centre for Policy Studies (CPS) in 2023 found that UK households only invest an average of 4% of their financial assets in stocks and shares, far lower than many other European countries.

Within Europe, Germany is one of the leading countries when it comes to investing for the future. The number of households that own stocks and shares is around 50% higher than in the UK, and many savers contribute regularly to investment accounts.

ETF shift  

German savers used to be some of the most cautious in the Eurozone, but that changed after the financial crisis. Several factors helped drive growth in the market, including low interest rates, which reduced the appeal of traditional cash savings accounts. The prevalence of low cost brokers and the rise of exchange traded funds (ETFs) also helped fuel the boom.  Capital at risk. 

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ETFs have revolutionised the investment market around the world. Two decades ago, they were virtually unheard of. Now, they're the world's largest investment type of investment vehicle, with investors around the world piling into ETFs, which manage trillions of dollars of assets.

An ETF is a type of investment fund wrapper. Unlike open-ended investment companies (OEICs) or unit trusts, which trade once a day, ETFs can be bought or sold at any point during the trading day (when the market is open)*

These investment vehicles are also cheaper on average than unit trusts and OEICs and due to the fact their holdings are always available to view online, far more transparent than their traditional peers. 

Over the past decade, all sorts of ETFs have sprung up. The first ETF was a simple passive investment fund that tracked the performance of the S&P 500 index. But since then, ETFs have emerged that track everything from US, UK and emerging market government bonds, to individual commodities and baskets of stocks based on sectors or themes such as the future of defence, energy transition and AI. In recent years, Active ETFs have gained popularity which combine the benefits of active management with the transparency, liquidity and accessibility of ETFs  

European saving  

The flexibility of ETFs also makes them perfectly suited to regular savings plans. Investors only need to put away a few hundred pounds or euros every month, and they can buy a diverse portfolio of equities at the click of a button without having to worry about selecting individual stocks and shares themselves with an automated ETF investment plan. 

Building long-term portfolios is straightforward with a platform such as InvestEngine. Investors can either leave it to the experts, or choose a portfolio of their own ETFs from providers such as HANetf and automate the process with automatic investing and one-click rebalancing. 

With its savings culture, Germany has become the biggest market in central Europe for ETF savings plans, with the amount stashed in these plans being around eight times higher than the rest of Europe combined.

European lessons  

Investors in the UK can learn a lot from the approach of their German counterparts. Over the long term, 20 to 30 years, equity returns have outperformed cash by a wide margin in real terms (after adjusting for inflation).  

While there’s been some volatility along the way, and past performance should never be used as a guide to future returns, savers should consider investing through ETFs to grow their wealth over the long-term. Regular ETF savings plans can help savers quickly and cheaply build a diverse portfolio of global investments.

Investors should be taking a low-cost, diversified approach to long-term investing. Ensuring costs remain low is crucial, as fees can have a significant impact on returns over time. Diversification is also key, as it ensures the portfolio remains robust to any market shocks or surprises, allowing the portfolio to compound over time.

Investors commonly take a 'core/satellite' approach - where the majority of their portfolio (the 'core') is made up of global stocks and bonds (the balance of which depends on the client's risk profile), and a smaller 'satellite' allocation which contains more thematic funds and allows the investor to express their investing views.  

This content is part of a sponsored partnership with HANetf. It is for educational purposes only and does not constitute investment advice. Capital at risk.

*InvestEngine combine all the orders for a specific ETF and invest them in one go. This process keeps costs down, allowing them to offer commission-free investing for all.