ETFs: What are they, why consider them and how to start investing now

Sponsored by BetaShares

Why back one horse when you can back the whole field for a chance at a good return?

That’s essentially the theory behind investing in ETFs – exchange-traded funds – an increasingly popular investment option for those who want to ‘hedge their bets’ on the share market.

Okay, so, there’s a little more to it than that.

ETFs are one of the fastest growing categories of investment products in the world.

An ETF is an open-ended investment fund with access to almost every corner of the market and every major asset class and works similarly to a traditional managed fund but traded on the Australian Securities Exchange (ASX).

ETFs allow you to buy a suite of shares or assets in a single trade and allow you to invest in markets or assets that can otherwise be difficult or expensive to access. And the diversification means that if one of the shares held by the ETF performs badly, it won’t have a catastrophic effect on your investment.

Sounds a little like a mutual fund, right?

Not quite.

ETFs offer the same diversification benefits as mutual funds, but at a much lower cost.

Mutual funds are usually actively managed by a specialist trying to beat the market by buying and selling stocks using their investing expertise, which often means higher costs for investors.

Most ETFs are passively managed funds that closely track the performance of a pre-selected index or asset class and provide returns that are similar to the performance of the underlying index or asset class – with much lower fees.

Some actively managed funds may outperform ETFs in the short term, but they rarely outperform them in the long run.

Basically, ETFs are a simple, transparent, low cost and flexible investment option with high rates of solid returns – everything you want from an investment.

So, how simple is it to invest in ETFs?
You’ll need a broker to buy and sell units – the same way you buy and sell shares.

If you’re already tapped into the stock market, that means you won’t have to open a separate trading account beyond your existing share brokerage account.

Typically, there is no minimum investment requirement, beyond what’s stipulated by your broker. This can be as little as one share or $1000.

So, why are ETFs such a popular investment option right now?
Pros include:

– ETFs are an efficient way to diversify your portfolio.

– They cover a broad selection of asset classes and sectors, including international equities and fixed income.

– Management costs for ETFs are typically much lower than they are for actively managed mutual funds.

– You can invest in a range of asset classes, such as fixed income, stocks or commodities, and more.

– ETFs can be bought and sold at any time during the ASX trading day.

– Holdings are disclosed daily on the ETF provider’s website, so you can track how your investments are performing and pivot when applicable.

– ETFs are usually more tax-efficient than mutual funds because stock turnover is typically lower.

– Robo-advice tech means ETFs can work for hands-on or hands-off investors.

– They’re SMSF-friendly and can work inside your Self-Managed Super Funds, making them a prime investment pick for retirees.

“Whether the objective is to build long-term wealth, take advantage of market conditions, or make a first investment for your children, ETFs can be a simple way to gain instant diversified exposure to local and global markets,” says ETF specialist BetaShares.

So, how do you get started?
Whatever your investment experience, the following webinar will provide you with useful information about investing in exchange-traded funds.

To learn more about the basics of ETFs, and how to build a portfolio using ETFs, click here: www.betashares.com.au/learn/21-steps-etfs

BetaShares is a leading manager of ETFs and, since 2009, has been providing intelligent investment solutions that help Australian investors meet their financial objectives.

BetaShares has the broadest selection of ETFs and other exchange tradeable funds that cater to different investor needs. With more than 60 Funds available and more than $17 billion in funds under management find out more at www.betashares.com.au

Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.
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