How do I choose the right ETF?

ETFs are a good way to build up a broad portfolio with little effort. But how do you choose the right ETF? We show you what you should pay particular attention to and how to find the ETF that best suits your needs.

Find the right ETF in three simple steps

Step 1: Define your risk profile and investment strategy

Before selecting an ETF, you should clearly define your investment objectives and your ability to bear risk. Consider whether you want to build long-term wealth, achieve regular returns or seek short-term gains. Your ability to bear risk also plays a decisive role. Are you willing to take higher risks for potentially higher returns, or do you prefer a more conservative investment strategy? These considerations will help you identify the right type of ETF, whether it is an equity ETF, a bond ETF or a thematic ETF.

Investment horizon: How long do you plan to invest your money? How risky or conservative you can be depends in large part on the investment horizon you have in mind.
Risk tolerance: Risk tolerance varies from investor to investor. Some people are willing to take greater risks to achieve higher returns, while others prefer a more conservative approach.
Investment class: When you think of ETFs, you probably immediately think of equities. However, there are many other asset classes in which you can invest with ETFs: bonds, commodities or real estate, for example.
Region: Do you want to focus on a specific market, such as Germany or the USA, or would you prefer to invest in entire regions, continents or even the global economy? All of this is possible with ETFs.
Sectors, themes and trends: You can also focus on a specific sector (e.g. tech companies or healthcare) or specific themes and trends (e.g. sustainability or artificial intelligence).
Number and weighting: Do you want to invest in a single ETF or would you prefer to invest in several? The weighting is important on two levels: if you have several ETFs in your portfolio, you decide on the weighting in your portfolio by selecting specific ETFs (e.g. you can invest 90% in developed market ETFs and 10% in emerging market ETFs).

Step 2: Choose the appropraite index

Based on these objectives, you choose an appropriate index that corresponds to your investment preferences. For example, the S&P 500 could be suitable for broad market exposure in the USA, while the MSCI World offers global diversification. For specific industry interests, you could consider indices such as the NASDAQ-100 for technology or the STOXX Europe 600 Health Care for the healthcare sector.

Well-known equity indices:

S&P 500: The S&P 500 is an equity index that represents the 500 leading US listed companies and covers around 80 percent of market capitalisation.
MSCI World: The MSCI World Index comprises over 1,600 equities from 23 developed countries. With more than 1,500 securities, the MSCI World represents approximately 85% of the market capitalisation of these markets.
NASDAQ-100: The NASDAQ-100 is an equity index that includes the 100 largest non-financial companies on the NASDAQ US stock exchange. It includes leading technology and growth companies and offers broad diversification in the technology sector.
Dow Jones Industrial Average: The Dow Jones Industrial Average (DJIA) is one of the oldest and most well-known equity indices in the world, reflecting the share price performance of 30 of the most significant American stock markets. It serves as a barometer for the US economy.
Euro STOXX 50: The Euro STOXX 50 is an equity index comprising the 50 largest listed companies from the eurozone countries. The index serves as a benchmark for the European economy and offers broad diversification across various sectors.
Nikkei 225: The Nikkei 225 is a leading equity index representing the 225 largest and most liquid companies on the Tokyo Stock Exchange. The Nikkei 225 is an important indicator of the performance of the Japanese economy.
FTSE: The FTSE 100 equity index includes the 100 largest companies listed on the London Stock Exchange. The FTSE 100 serves as an important indicator of the performance of the UK economy and offers broad diversification across various sectors.
SMI: The Swiss Market Index (SMI) is the most important equity index in Switzerland and includes the 20 largest and most liquid companies listed on the Swiss stock exchange. It is an indicator of the development of the Swiss economy.
SPI: Even more comprehensive is the Swiss Performance Index (SPI), an equity index that includes almost all companies listed on the Swiss stock exchange: large, medium and small companies.
DAX: The DAX is the most important equity index in Germany and shows the development of the 40 largest and most liquid companies listed on the Frankfurt Stock Exchange. The DAX serves as a barometer for the German economy.

Step 3: Research and compare ETFs

Once you have selected a suitable index, research different ETFs that replicate this index. Pay attention to important factors such as the type of replication (physical or synthetic), the total expense ratio (TER), the liquidity and the tracking error, i.e. how exactly the ETF replicates the underlying index. Use comparison platforms and financial portals to analyse the performance and cost structure of different ETFs. Research can help you select the most efficient and cost-effective ETF.

Important criteria for ETF selection

Costs: Pay attention to the total expense ratio (TER) to make sure you don't pay unnecessarily high fees.
Fund volume: A higher fund volume may indicate better liquidity and stability.
Replication method: Decide whether you prefer physical or synthetic replication.
Tracking error: Check how closely the ETF tracks the index.
Dividend policy: Choose between distributing and reinvesting ETFs, depending on your income needs.

You can find this information in the ETF factsheet

Fundamental information and structure

An ETF factsheet provides a compact overview of the most important features and key figures of an ETF. The basic information includes the name of the ETF, the underlying index, the fund company and the fund volume. Also pay attention to the total expense ratio (TER), which indicates the annual ongoing costs of an ETF in percent. Other key figures include the tracking error, which shows how accurately the ETF tracks the index, and the type of distribution (distributing or reinvesting).

Performance and composition

Another important section of the ETF factsheet is the performance overview, which shows the performance of the ETF over different time periods. Compare these with the performance of the underlying index to assess the efficiency of the ETF. Here you will also find information on the composition of the ETF, including the largest positions and the sector and country allocation.