Investing in stock index (ETF)
You can find dozens of articles on investing in stocks on the internet that describe these points (with which we agree):
Invest regularly on a monthly basis, don't try to time the market when stocks are cheapest.
Ideally, buy as many companies as possible, ideally through a low-cost index.
Most of these articles, however, are rather sparse on how to access these indexes (or ETFs, which are passive low-cost funds that copy an index - you often find these funds abbreviated as ETFs on platforms). We offer two options - a basic, simpler one and an advanced, more complex one.
Investment company Amundi
(available only for people living in Czech republic)
At Amundi, you will find a more limited selection of index funds compared to brokers. As an example, we are selecting 2 global indices of developed countries that you can buy directly in Czech crowns. The first one is currency-hedged to the crown, and the second one is not:
With Amundi, you can buy indexes also USD and EUR, here is full list of funds: Platform Amundi.
Advantages of Amundi: the option to buy ETFs in Czech crowns, low costs, easy management.
Disadvantages of Amundi: a limited fund selection, delay between sending funds and actual investment.
Amundi index funds must be arranged through a financial advisor (where you may encounter reluctance with commission-based advisors since index funds are not paid). We can also arrange them for you as part of our paid consultations.
Within XTB, you can choose any indices. XTB doesn't charge any fees for buying ETFs, but if you send Czech crowns there, they will charge an exorbitant 5% for currency conversion. Therefore, it is advantageous to first exchange your money at an online currency exchange, for example, on Revolut or Wise, and send EUR/USD directly to the platform.
Advantages: a complete selection of indices, the option to buy specific stocks.
Disadvantages: high currency conversion fee, lack of currency hedging.
You can open an XTB account online. If you use our link and gradually invest 10,000 CZK, we will receive a commision of 600 CZK. Our affiliate link for opening an account is here: https://link-pso.xtb.com/pso/XdOYL.
Wrap-up and Frequently Asked Questions (FAQ)
In a nutshell, here's how it goes:
If you're satisfied with a basic selection of indices, don't want to dedicate much time to investing, and will send a regular monthly amount, Amundi will be sufficient for you.
If you have higher demands, don't mind converting currencies on the side, or have euros or dollars, choose XTB. Here, you can also appreciate other options - buying individual stocks, setting specific price orders, or the ability to trade immediately on the spot market.
What you'll also read in other articles is that it's not as crucial which platform you choose or which specific index you select, but mainly that you start. We agree with this - in stock investing, time is your friend, but it's essential to move your money to safer products if you'll need it in the near future. It's generally recommended to invest in stocks for at least 10 to 15 years, making it a suitable tool for long-term investing.
Q: Is it worth buying stocks when the interest on a savings account (or repurchase agreement) is 6%?
A: This depends on how stocks will perform. It's important to realize that a 6% interest rate is annual and gross. We're talking about approximately 0.4% monthly net return. However, stocks can easily earn 5% or even 10% in a month. They may never be cheaper. So, while you might earn an extra 0.4%, you might be buying stocks that are 10% more expensive. If your goal is to buy and hold stocks, perhaps to secure funds for retirement, you risk ending up with a loss.
Q: Why are index funds better than standard mutual funds?
A: It can't be said that index funds are better; they are simply cheaper. A standard equity mutual fund in the Czech Republic has a (yearly) management fee of around 1.5% to 2% per year, while ETFs have fees of around 0.2% to 0.3%. When entering a standard mutual fund, they may also charge a one-time entry fee. So, if you choose the active fund route, you must select a fund that you believe the manager can earn more than 2% more than the index in the long term for your bet to pay off. Statistically, this is less likely: roughly 80% of active funds don't beat the index. In the Czech Republic, a fund like TOP STOCKS from Česká Spořitelna has been successful, which has a 3% entry fee (one-time) and a 1.95% management fee (every year).
Q: Is it better to choose indices that include only developed economies, or also emerging economies?
A: Especially for small savers, the difference won't be significant. Indices buy stocks based on the size of companies, so in global indices, there are only about 10% emerging economies and 90% developed countries. The difference in performance between these two indices won't be as dramatic as it may seem. Note: Currently, you can't buy a global index from Amundi; you can only buy a fund for emerging markets, where you invest 10% of your total investment and achieve a similar effect.
Q: Isn't it better than world indices to choose the American S&P 500 index?
A: The answer is similar to the previous question - in indices of developed countries, America is represented in roughly 70% of the portfolio, in global indices, it's around 60%. So, America is broadly represented even in global indices. It's up to you if you want to invest only in America or include it with a smaller percentage. To date, the USA has had higher returns than the world, but in investments, past returns are not a guarantee of future returns. The advantage of the S&P 500 index is its very low fees, around 0.05%, compared to global funds, which have 0.2% to 0.3%. You can buy the S&P 500 index on XTB, and at Amundi, but only in dollars; there is currently no version hedged to CZK.
Q: Should I choose currency hedging to the crown or not?
A: At XTB, you don't have this option. At Amundi, there is one such fund listed above - a global index of developed economies. With hedging, you can make or lose money depending on how the value of the Czech crown changes. But in general, it is considered a safer bet.
Q: How about taxes?
A: As a Czech tax resident, just like with stocks, if you hold an ETF for at least 3 years, the return is exempt from tax.
Q: Why do you list not being able to influence the purchase date as a disadvantage?
A: If you send a fixed amount monthly and won't monitor the market, it won't matter to you. However, if you follow the market's performance, the delay can be a problem. Stock markets are very volatile. It can happen that there is a drop of 10% in one day, and, let's say, on that day, you decide to buy more because you see it as an opportunity to buy cheaply. If you have a tool that can't execute an immediate trade (like the mentioned Amundi funds), you send the money, but the purchase won't happen until a week later. This could cause you to lose out; if stocks recover and instead of buying 10% cheaper, you might end up buying 5% more expensive.
Q: Are there other companies providing similar services?
A: As for mutual funds, not so much. As for brokers, there is a wide range of options. We selected XTB because it doesn't charge any fees for ETFs. However, you can also use brokers like Interactive Brokers, which has similar conditions. In the Czech Republic, you can try out Patria or the Portu platform, which you can arrange online through our affiliate link (after registration, we receive 200 CZK): http://www.portu.cz?a_box=9nj79ttk. Just be cautious, Portu charges an annual portfolio management fee in addition to the fund fee, but it has more options than Amundi.
Q: Can I lose my money if the broker/investment company goes bankrupt?
A: The investment company or broker doesn't have access to your money - it's held by the custodian bank, and the broker only executes instructions and receives a fee for it. If the broker goes bankrupt, you still own the ETF, and you simply transfer it to another broker. The only risk is that you might not have access to your ETFs for some time.
If the article on investing has piqued your interest but you need more detailed information or specific support for your case, don't hesitate to contact us through individual consultations.
Disclaimer: Fees, portfolio allocation, and other information are accurate as of the date of writing the article and may change over time. The information in the article is for informational purposes only and does not constitute investment advice or recommendations.