Basic and advanced ETF investing strategies

There are a number of ETF investment strategies that can be implemented to help you reach your goals.

Strategic asset allocation
ETFs can be used as part of your long-term strategic asset allocation. Because they are simple to purchase, cost effective and transparent, and offer exposure to a diverse range of asset classes and strategies, ETFs are often used as long-term holdings.

Essentially, investors can use ETFs to construct a diversified, long-term portfolio in a cost-efficient way.

Tactical asset allocation
Use ETFs to ’tilt’ your overall portfolio towards, or away from, certain asset classes, regions, or sectors that you expect to outperform or underperform.

BetaShares Sector ETFs can be used to ‘overweight’ certain sectors of the market, which the investor considers will outperform the broader market. For example, investors with exposure to a broad Australian shares index fund might sell a portion of their investment and buy units in a financial sector ETF (e.g.: BetaShares Australian Financials Sector ETF (ASX: QFN)) if they believe the financial sector is set to outperform the broader market.

This investor would now be ‘overweight’ Australian financial shares. More broadly, ETFs allow you to implement a view on a particular market segment without the need to engage in ‘stock picking’. You can also diversify away from single stock risk.

What is an ETF: and why should they be part of your retirement plan?

Thematic ETFs
Thematic investing is about trying to identify long-term transformational trends, and the investments that are likely to benefit if those trends play out.

Examples of these themes are climate change, and the rise of cybersecurity, which is increasingly becoming a critical threshold component of all technology solutions as more and more of our world goes online.

Investors can gain focused exposure to many of these themes via ETFs. To access the above two themes, for example, BetaShares offers the BetaShares Climate Change Innovation ETF (ASX: ERTH) and the BetaShares Global Cybersecurity ETF (ASX: HACK).

Read: Why ETFs are the ideal retirement investment option

Core/satellite strategies
This is where ‘core’ passive investments are combined with ‘satellite’ active investment strategies.

Essentially, the idea is to split the investment portfolio into two categories:

  • Core: this should be the basis of the investment strategy, and should aim to produce market returns (otherwise known as Beta) via low-cost diversified investments.
  • Satellite: the aim of the satellite component is to outperform the ‘core’ holdings, and provide returns greater than the market return (otherwise known as Alpha).

A core-satellite strategy provides you with the opportunity to outperform the market but at a lower overall cost to a completely ‘active’ approach.

Due to the cost-effective, diversified nature of ETFs, they are typically an ideal way to get ‘core’ exposure.

Satellite strategies can then be achieved via individual stock selection, managed funds or targeted exposures using ETFs tracking more narrowly focused indices.

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

Parking cash equitisation
ETFs can be used to ‘park’ cash while decisions are being made on investment strategies. For example, the BetaShares Australian High Interest Cash ETF (ASX: AAA) offers the opportunity to earn attractive monthly income from Australian cash, in a single ASX trade, without the need to open a bank account, lock your funds away in a term deposit, or seek out ‘honeymoon’ rates.

Whatever your investment needs, BetaShares is sure to have a fund that will assist you in meeting your retirement investment goals.

BetaShares is a YourLifeChoices partner.

Disclaimer: BetaShares Capital Limited (ABN 78 139 566 868 AFSL 341181) (BetaShares) is the issuer of the BetaShares ETFs. Before making an investment decision, investors should consider the Product Disclosure Statement (PDS), available at www. betashares.com.au. This information does not take into account any person’s objective’s, financial situation or needs and is not a recommendation or offer to make any investment or to adopt any particular investment strategy. Investors should consider the appropriateness of the information taking into account such factors and seek financial advice. Investments are subject to investment risk, investment value may go down as well as up, and investors may not get back the full amount originally invested. ASIC’s MoneySmart website has useful information for people considering investing. The MoneySmart resources can be found at https://www.moneysmart.gov.au/ investing. ASIC’s MoneySmart website has no affiliation with BetaShares.

Do you have any experience with ETFs? Why not share your suggestions in the comments section below?

All content on YourLifeChoices website is of a general nature and has been prepared without considering your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before planning based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

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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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