Investing in ETFs: How to Diversify Your Portfolio While Keeping Fees Low
ETFs, or exchange-traded funds, have profoundly changed the way individual investors access financial markets. Simple, low-cost, and transparent, they allow investors to gain exposure to hundreds of companies with a single transaction. How do they actually work, and why are they attracting so much interest from individual investors?
What is an ETF?
An ETF (Exchange-Traded Fund), also known as a trackers, is a collective investment vehicle whose shares are bought and sold on the stock exchange, just like common stock. Its distinctive feature is that it closely tracks the performance of a benchmark stock index, without seeking to outperform it.
For example, when you invest in an ETF that tracks the CAC 40, you gain exposure to the 40 largest listed French companies, in the same proportions as the index. An ETF that tracks the S&P 500 provides access to the 500 largest U.S. companies.
This replication approach also applies to indices:
sector-specific (technology, healthcare, energy);
geographic (emerging markets, Europe, Asia-Pacific);
thematic areas (energy transition, artificial intelligence, etc.).
This is known as passive management: the fund manager does not make discretionary selections of securities. Instead, the manager simply replicates the index’s composition, which significantly reduces operating costs.
The Benefits of ETFs
Management fees that are significantly lower than those of traditional funds
This is one of the strongest arguments in favor of ETFs. A traditional actively managed fund, such as a UCITS, charges an average annual management fee of between 1.5% and 2.5%. An index ETF typically charges between 0.05% and 0.50%, depending on the fund series and the indices it tracks.
Over the long term, this difference has significant implications: over 20 years, a 1.5% annual difference translates to lower returns for the investor. The impact of fees on final returns is, in fact, one of the few factors that a retail investor can directly control.
Immediate diversification and risk mitigation
Buying a share of an ETF allows you to invest simultaneously in all the companies that make up the index it tracks. A single trade is all it takes to gain exposure to dozens, hundreds, or even thousands of companies.
This instant diversification spreads out the specific risk associated with any one company or sector. If a stock drops sharply, its weight in the index limits the impact on the overall portfolio.
This is a major difference from investing directly in individual stocks, which requires time, resources, and in-depth knowledge of the markets to build a diversified portfolio.
Accessible, transparent funds with high liquidity
ETFs trade continuously on stock exchanges during market hours. They can be bought and sold through a standard brokerage account, a PEA, or a life insurance policy, depending on the eligible products. Prices are displayed in real time, and transactions are generally executed within seconds.
This accessibility stands in contrast to certain traditional funds, whose net asset values are calculated only once a day. Subscriptions or redemptions can take several hours, or even several days.
Finally, the composition of an ETF is known and can be viewed at any time, since issuers regularly publish the list of securities held in the fund. Investors therefore know exactly what they are investing in, unlike with actively managed funds, whose portfolios are disclosed only periodically.
Good to Know
Most actively managed funds (managed by professionals) underperform market index ETFs over a ten-year period. Why? Because of high management fees and the difficulty of consistently beating the market. An ETF tracking the S&P 500 or the Euro Stoxx 50, with fees ranging from 0.05% to 0.40%, faithfully replicates the market’s performance without attempting to outperform it. This is why institutional investors are increasing their allocations to ETFs.
The Risks of ETFs That Should Not Be Underestimated
Like any investment in the stock market, ETFs involve real risks that should not be ignored.
If the index falls, the value of the ETF falls by the same percentage. Unlike an actively managed fund, an ETF cannot take a defensive position or reduce its exposure in the event of market turbulence. In 2020, during the health crisis, the S&P 500 lost more than 30% in a matter of weeks before rebounding.
This risk is real and significant. ETFs are suitable for medium- or long-term investments (the recommended time horizon is at least five years), to allow time for the markets to run their course without locking in losses.
For certain ETFs with low trading volume (niche indices, emerging markets, etc.), the difference between the bid price and the ask price (the spread) may be wider.
This applies to ETFs invested in assets denominated in foreign currencies (dollars, yen, pounds sterling, etc.). An appreciation of the euro can erode the performance of an ETF exposed to the U.S. market, even if that market is rising in dollar terms. However, there are“hedged”ETFs—that is, those protected against this risk—though they come with higher fees.
Good to Know
Don’t confuse trading volume with performance: a highly liquid ETF isn’t necessarily the best choice for your goals. Also avoid overly specialized ETFs (single-sector or single-country) that concentrate risk. Finally, be mindful ofleverage: some ETFs use debt to amplify returns, which also significantly increases risk. Always read the fund’s prospectus before investing, or seek advice from specialists like Raizers.
Why Include ETFs in an Investment Strategy with Raizers?
ETFs and real estate crowdfunding operate on different—yet complementary—principles. ETFs offer exposure to listed markets, with high liquidity and short-term volatility. Real estate crowdfunding with Raizers offers potentially higher returns—uncorrelated with the stock markets—on concrete projects such as real estate development, renovation, and land development. With Raizers, you can incorporate ETFs into your wealth management strategy through your life insurance policies.
Combining different products within a single portfolio allows you to diversify both asset classes and sources of return while reducing dependence on stock market cycles.
This complementarity is at the heart of a balanced wealth management strategy. ETFs provide liquidity and exposure to major global economic trends, while real estate investments offer a tangible asset class and potentially stable returns.