Independent Financial Advisor and Co-Founder of Affari Miei
January 29, 2024
BTP Vs ETF: there are two instruments for investing, they are two different tools that have different characteristics and for this reason deserve further investigation.
Which of the two solutions is better? Which is the most profitable? Which is the least expensive?
These are all legitimate questions, which require in-depth analysis and analysis to be answered: today, in fact, we will see together what the characteristics of the famous BTPs and what are the characteristics of ETFs, i.e. passively managed funds, and we will try to understand together when it is better to invest with BTPs and when it is better to opt for ETFs.
Let’s start!
This article talks about:
BTP: characteristics
I BTP they are government bonds that are issued by Italy.
The characteristics key you need to know are:
Fixed coupon yield that can be calculated immediately. Relatively low risk. High liquidity
At first glance, this is everything you need to know about these multi-year treasury bonds: I invite you to consult this article in order to have more information and a sort of more in-depth overview.
ETFs: characteristics
Let’s look at them now ETFor passively managed funds.
You have no doubt heard of them because, especially in recent years, they have become an interesting tool that has attracted the attention of investors.
They are exchange traded funds.
Let’s see the three points key that we absolutely must know:
Variable return that depends on the market in which we are investing Medium or medium/high risk that varies with respect to the area in which we are investing High liquidity, although we must be careful.
In fact, regarding ETFs we cannot speak in general, but we must always refer to the market in which they invest, to the companies they have in their basket, and to a series of characteristics that distinguish them and which deserve a separate in-depth analysis.
Since we have discussed the topic over and over again here on Affari Miei, I recommend you read these articles for more information on these tools:
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BTP Vs ETF: here’s the comparison
After having seen all the characteristics of both instruments we must try to make a comparison between two.
Let’s start from PERFORMANCE: The return of long-term ETFs could be higher if the market is able to give us a higher return although, with higher returns, you most likely have to associate greater risk. For example, volatility that is higher over time might scare you, especially if you approach ETFs that concern the stock market.
Let’s go now to the DIVERSIFICATION: an ETF has hundreds if not thousands of securities and investments within it, be they stocks or bonds, while a BTP is a loan that we make to the Italian State and that’s it, so we don’t have any diversification. Even if we buy 10 BTPs we could not have any diversification.
If we talk instead about COSTSwe know that BTPs have no costs other than those relating to the platform that allows you to purchase them, while with regards to ETFs you will have to think about the transaction costs and annual management costs (which in any case are lower than those of mutual funds) that impact your performance.
BTP Vs ETF: What should you do?
This is a question that makes no sense from a TECHNICAL point of view: the two tools are in fact not alternatives but rather, in certain cases they are complementary.
This question is often asked because BTP is synonymous with safety while everything else is riskier, so sometimes we wonder if there is a valid and/or better alternative to treasury bonds.
Be careful though because i BTP are not always safe: both tools that are not alternatives have advantages, disadvantages but also risks that you need to know before investing.
I can only recommend you to be prudent and not to throw yourself headlong into one investment or another.
Conclusions
I hope that this guide has been useful to you and above all that you have been able to understand how BTPs and ETFs are different instruments that have nothing to do with each other and which in any case deserve separate in-depth analysis regarding their characteristics and their risks.
Before saying goodbye I also want to leave you some guide with which you can begin your investment journey:
Enjoy the reading!
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