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Yes, that is more important than the fees!

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MSCI World Index ETF

With an ETF and an index fund on the DAX, the MSCI World, or the S&P 500, do fees play a minor role? Yes, that is correct. Since the fees are usually around 0.1%, sometimes higher or lower, the differences are not significant. While there is a difference between 0.1 and 0.2%, it can add up to a significant amount in the long run. But there is at least something more important.

Other factors are decisive for normal market profitability. The fee indicates the amount of the return that is deducted from the return of your ETF on the DAX, MSCI World, or S&P 500. But there is one variable that should be at least as on the screen.

ETFs on DAX, MSCI World and S&P 500: Tracking Error!

Tracking error is a more relevant metric for an index fund. But often something sinks. What is that anyway? Simply put, the difference between the performance you get and what the index would have given you. Due to the different compositions or proportions, it may be different,

The tracking error is relevant for an ETF on the DAX, the MSCI World, or the S&P 500. Smaller index funds in particular sometimes have differences. If the difference here is 0.3% due to the different compositions, this is more important than a 0.1% rate difference compared to another provider.

Foolish passive investors should therefore also pay attention to the tracking error next to the fee. The quality of the composition, but also the size and volume of the background are decisive. Larger funds are often not as sensitive to this difference. At least if the composition is consistent and has no qualitative defects.

A mistake that no one has anything

At least the fund company gets some of the fee if it launches an ETF on the DAX, MSCI World, or S&P 500. Tracking error, meanwhile, is something that comes with indirect costs. No one benefits from deviant performance. Neither you, if it is negative, nor the fund company.

So tracking error can also make a difference. Avoiding it is sometimes better than just investing in the cheapest index fund. There is often a correlation between size, susceptibility to tracking error, and fee. Larger ETFs tend to be cheaper and, due to their volume, are not as susceptible to differences in composition.

The ETF and Indexfonds article on DAX, MSCI World and S&P 500: Yes, that’s more important than fees! first appeared in The Motley Fool Germany.

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Motley Fool Germany 2022

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