Using ETFs
Using Exchange Traded Funds (ETFs) – Suitable for investments of $1,000 to $1m+
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USING EXCHANGE TRADED FUNDS (ETFS)
Investing successfully in shares can be done easily by owning just a few of the right Indexed
Exchange Traded Funds.
Read more about what shares and ETFs are
by Clicking Here.
These are large funds that you can buy shares in that make clearly defined and easy to understand
investments. You can own them for the long term with similar confidence to having a Superfund
because they invest in the same things.
Unlike Super, you can always sell some of your ETF shares and get the sale proceeds in your
bank account within 2 business days. You do not need to buy them directly from the company that
runs them. They will market their own share trading platform heavily on their website but you can use
your preferred one.
Finding a Platform - click here.
Index ETFs are suitable share investments for very small or very large sums of potentially $1,000 to $1m+.
They are ideal for smaller share investors due to their low costs to own as well as to trade when
using a share trading platform.
The funds listed on this site pay around 3-4% p.a. in dividends or distributions with an even
greater rate of capital growth.
These funds rise and fall with the whole share market as Super does.
They will always recover from falls at some point, just as the market does, because they are a series of
investments across the market.
A strong portfolio can be built with just 2-3 of the right ETFs. Despite
his fame for being the world’s greatest investor in individual companies, Warren Buffett said that "a
low-cost index fund is the most sensible equity investment for the great majority of investors". ETFs
provide the best means to make that kind of investment. Shares beat all other asset classes for returns,
simplicity and flexibility. ETFs are a great way of investing in particular groups of shares efficiently
and in one entity.
ISSUERS
There are many companies that are Issuers of ETFs. They set up the funds, sell shares to get them
going, and manage them for a fee. The fee is taken from the fund and not charged to the funds’
shareholders directly. Each Issuer company has a number of ETFs that they manage. When you invest
in an ETF, your investment will perform according to the companies that the ETF is invested in. You
can see this on the individual ETF’s website.
You are not investing in the company that manages the
ETFs. Do not mix up different ETF products and Issuers. Also remember that you do not need to
engage directly with the Issuer, or fund manager company, to buy your shares. You can use another
platform. There are over 400 ETFs listed on the Australian Stock Exchange and most of them are
unsuitable for new investors (or anyone else).
The marketing of these sites will push you towards the
new and exciting ETFs that that charge higher fees and invest in niche ideas. It is better to stick to the
funds that follow well-known and widely held Indices. That puts you with the crowd in a good way
with lower risk and lower fees.
WEBSITES
There are plenty of useful things to check out on an ETF web page. Make sure you are on the right
one first of all. The name of the product should obviously be at the top of the page but the best thing
to check for to avoid confusion between similar products is the ASX code.
Important info includes:
Management fee (this is taken from within the fund), past performance, price-per-share information
(out of date and not live), the Share Registry used by the fund (their investor relations portal), past
Distributions (passive income payments to you) and, most importantly, what companies the fund is
invested in.
The performance of your investment in an ETF will directly follow the share price performance of the companies in it. Please ignore the crypto and AI marketing and other dubious
products. Ignore the suggestion the buy the shares with the Issuer’s share trading platform.
INDEX ETFS
You can read about what Indices, Index Funds and Indexed ETFs are on the All About Shares page
by Clicking Here.
When you invest in an Index ETF, you are investing in something where you know exactly
what you own and what you will own in the future. You will own what is in the fund, which is
dictated by what is in the Index, which is determined by the aim of the Index.
The S&P/ASX 200
aims to measure the performance of the top 200 companies’ shares that are trading on the Australian
Stock Exchange, weighted by size. In short, it is invested across the largest businesses on the
Australian share market. This gives fund managers the ability to invest in the Australian market
according to a respected method by copying the Index. This avoids the costs of deciding which shares
to buy themselves.
DIVERSIFICATION
If your holding gets big enough then you may want to spread your wealth away from using only one
or two Issuers of ETFs. In theory one could go bust and, in that case, possibly lock up your funds for a
time. This is unlikely but we are talking about decades-long investments so caution is warranted.
The options are to also invest in a similar ETF with another Issuer company or to start to build a portfolio
of individual companies as well. The second option is for those who have gained enough of a
portfolio to be considering professional advice. The sensible ETFs are likely very safe, traditional
share market price swings aside.
There is no total guarantee when it comes to share returns including
with ETFs. It is extremely likely, however, that holding low return investments like cash will lock in a
lower result in the long run.