ETFs and shares

What Is an ETF?

ETF is an abbreviation for Exchange Traded Fund - a fund traded on the stock exchange. Simply put: An ETF is a basket of many stocks or bonds that you can buy as a single asset.

Example

You want to buy shares in large American companies. If I bought them individually, I would need thousands of Kč for Apple, Google, Microsoft... But with an ETF you buy one share that holds all of them.

For example, the ETF "iShares Core S&P 500" holds shares of all 500 largest US companies.

Shares vs. ETFs, What Is the Difference?

Recommendations for beginners: Start with ETFs. They are simpler and safer.

How to Buy ETFs in the Czech Republic

Step 1: Choose Your Broker

A broker is an intermediary that connects you to the exchange. In the Czech Republic, your options are:

• Czech banks - ČSOB, Komerční banka, Raiffeisenbank (straightforward but with higher fees)
• Online brokers - Interactive Brokers (IBKR), XTB (lower fees, more products)
• Business platforms - eToro, Plus500 (simplest for beginners, but higher risk)

I recommend Interactive Brokers (ibkr.com): lower fees, quality platform, suitable for the Czech Republic.

Step 2: Open an Account

Register online. It takes 10-20 minutes. You will need:

• Proof of identity
• Proof of address (or a bank statement)
• Bank details for deposits/withdrawals

Step 3: Enter Funds

Transfer funds from your Czech bank account. This typically takes 1-3 working days.

Step 4: Buy an ETF

Register on the Začni Investovat platform, enter the ETF name (e.g., "VANGUARD S&P 500") and state how many shares you wish to purchase. Confirm, done!

Recommended ETFs for Beginners

If you are looking for simple and diversified funds, here are several popular ones:

Equity ETFs (Long-Term Growth)

• Vanguard S&P 500 ETF (VOO) - 500 largest American companies, very popular
• iShares Global Tech ETF (ICLN) - global technology companies
• SPDR Emerging Markets (GEM) - developing markets (Asia, Latin America)
• Vanguard FTSE Developed Europe (VE) - European shares

Mixed ETFs (Equities + Bonds)

• iShares Global All-Cap UCITS ETF (EUNL) - 60% shares, 40% bonds
• Vanguard FTSE All-World ETF (VWRL) - global diversification with lower risk

Tip: Start with one ETF on the S&P 500 (simplest option). Later, you can buy additional ETFs for other regions.

Long-Term Stock Returns

Historically, over the long term (20+ years), shares have yielded an average return of 7-10% annually. This varies by region and season.

Historical Returns (Last 20 Years)

• USA (S&P 500) - approx. 9-10% annually
• Europe - approx. 6-7% per year
• Developing markets - approx. 8-9% annually (higher volatility)

Important: Past performance is not a guarantee of future results. However, historically, long-term stock investments are how wealth grows.

The Compound Interest Effect (Compounding)

When you reinvest dividends and returns, your money grows exponentially:

• 10 000 Kč per year: 11 000 Kč (10%)
• 10 years: 26 000 Kč
• 20 years: 67 000 Kč
• 30 years: 174 000 Kč

That is the power of long-term investment!

Risks of ETFs and Shares

Market Risk

Share prices fluctuate. For example, during COVID-19 (March 2020), the S&P 500 fell by 35% in a month. Those who sold in panic lost out. Those who waited received a profit by the end of the year.

Inflation Risk

If you hold cash, inflation is eating away at its value. Stocks provide good protection.

Concentration of Risk

If you buy only one or two shares, you face high risk. With an ETF, you get automatic diversification.

How to avoid problems: Invest for the long term, don't panic, use ETFs.

Practical Steps

1. Choose a broker. I recommend Interactive Brokers for lower fees.
2. Open an account. Register and verify your identity.
3. Put your money in. Start with an amount you can afford to lose (without panic).
4. Buy one ETF to test it out. E.g. Vanguard S&P 500 - 5-10 stocks.
5. Later, buy regularly. The same amount every month: Dollar Cost Averaging.

Summary

• ETFs are baskets of stocks or bonds: ideal for beginners.
• Stocks carry higher risk but offer higher long-term returns.
• Historically, actions yield 7-10% annually.
• In the Czech Republic, purchase via a broker (IBKR, a bank, etc.).
• Start with one simple ETF.
• Invest for the long term: do not panic over fluctuations.