Comparison of costs and tracking error
ETF funds are very cheap and the administration costs are significantly lower than with actively managed funds. For example, the management fee for actively managed funds is usually over one percent per year, in contrast to this, the management fee for ETFs is usually less than half a percent per year. With the right investment fund savings plan, you can keep administration costs relatively low. But ETFs also differ significantly on the cost side.
cost of savings plans
Be sure to compare the fees very carefully before deciding for or against an ETF fund. It’s easy to do by using the Total Expense Ratio or TER Compare different ETFs. The TER (also known as management or administration costs) reflects the running costs of an ETF per year and thus includes almost all fees of the index fund.
However, the total expense ratio does not include, among other things, transaction costs that arise from the purchase and sale of stocks in the ETF. If you want to compare all the costs of an ETF, you should take a look at the issuer’s product information sheets and compare the ETF returns. All costs are already included in the returns.
In order to be able to compare ETF fees in detail, you should also take a look at the so-called Total cost of ownership (TCO) throw. The TCO indicates the actual total costs of a fund and also takes into account, for example, the swap fee for synthetically replicated ETFs, trading fees and spreads on transactions within an ETF, as well as taxes and income.
What does tracking error and tracking difference mean?
In order to have a complete overview of the expenses for your investment, you should also pay attention to the indirect fees that arise from the Tracking Error (TE). The TE measures the deviation of the ETF from the underlying index. If the TE is low, then the development compared to the index is very similar. But: The TE does not provide any information as to whether the deviation is positive or negative.
This reveals the tracking difference (TD). The TD indicates the difference between the return on the ETF and the return on the index that the ETF is tracking.
Order costs and custody fees
Also fall for the purchase of ETFs Order fees at your broker on. These differ from depot provider to depot provider. A few years ago, one or the other ETF savings plan was free of charge, but now a savings plan is usually subject to a fee.
But: Some brokers offer both a free securities account and ETF savings plans for just one euro per execution, for example this finanzen.net brokerage depot3.
Over-the-counter trading: You should bear this in mind when trading directly!
You can not only buy ETFs on the stock exchanges, many index funds are also traded over the counter. In so-called direct trading, it is possible for you as an investor to buy and sell shares in ETFs on the Lang & Schwarz and Tradegate trading platforms as well as at Commerzbank and Baader Bank.
Direct trading offers a particularly easy way to get started with ETF trading, because investors do not trade in over-the-counter trading – as the name suggests – via a stock exchange, but directly with a bank or securities firm. Trading is possible outside of stock exchange hours, the ordering process is simple and the cost structure is transparent. Best of all, the order fees are usually lower than when trading via exchanges.
But: Direct trading is not as strictly monitored as traditional stock exchange trading. Since the investor trades directly with a bank or securities firm, the trading partner sets the buying and selling prices. This can become a “problem” especially in trading outside of stock exchange opening hours. When the stock exchanges are closed, there are also fewer market participants in direct trading. This can result in trading with it becoming more expensive.