Keep calm and carry on (with ETFs)
by Ele de Vere
At the time of writing this article, the Australian sharemarket has dropped ~25% since the start of the year. The US sharemarket is down ~23%, and I’m 95% certain that I will not be logging in to check my superannuation or investment portfolio balances for a little while, well OK I might, but I will wish that I hadn’t!
The coronavirus crisis has intensified at an alarming pace. If this were a movie, would you believe the plot? As well as the health implications, COVID-19 continues to have an extraordinary impact on sharemarkets, which can make for a daunting time if you’re new to investing or were just about to get started.
However, before you panic or kick investing to the curb for good, keep in mind that market downturns are part and parcel of investing. Fortunately, if there are decades before you retire there is plenty of time for your investment nest egg to grow (or recover) and exchange traded funds (ETFs) may be a great place for you to continue your investment journey.
What are ETFs?
Let’s start with a few investing basics, and recap on what a share is. When you buy a share (also called a ‘stock’) you invest in a single company, like Apple or Woolworths. Almost anyone can buy or sell shares via a stock exchange using an online brokerage account or through a financial adviser, if you have one.
Our exchange in Australia is called the Australian Securities Exchange, or ASX for short.
ETFs, or exchange traded funds, are a type of investment fund that trades on an exchange just like a share. However, ETFs provide access to a group of assets, such as shares in a range of companies, rather than providing access to just one.
ETFs are growing in popularity here in Australia. According to BetaShares/Investment Trends 2019 research there are now more than 400,000 people in Australia investing in ETFs, up 18% year on year. Millennials make up 43% of new ETF investors (up from 12% more than five years ago), with the average age of an ETF investor getting progressively younger.
The popularity of ETFs among us ladies also continues to increase – we now account for 24% of all new ETF investors.
So, what’s all the fuss about?
ETFs provide an opportunity to get started in the sharemarket because they are low-cost, easy to access, and provide instant diversification. Let’s explore these concepts further:
Control what you can. Markets operate in cycles (ups and downs) which is something you cannot control. But what you can control, is how much you pay in fees. You pay an annual management fee for investing in an ETF, which is deducted from the value of your investment. No-one like fees – but ETFs typically charge much lower management fees than traditional investments, like unlisted managed funds.
An ETF’s fees are generally expressed in percentage terms (e.g. 0.59% per year). Here’s an example to show what you’d pay in fees if you had $1,000 invested in BetaShares’ global ethical shares ETF, with the ASX ticker ‘ETHI’ (more on tickers later).
|Management Cost*||Your $$$ invested||What’d you’d pay in fees each year|
|BetaShares Global Sustainability Leaders ETF (ETHI)||0.59% p. a||$1,000||$5.90|
*Other fees and costs, such as transactional costs, may apply. Refer to the Product Disclosure Statement for more information.
When you think about Netflix costing ~$120 per year, investing isn’t as expensive as you may think!
Get started for less
One of the most commonly-cited barriers to investing in ETFs is not having enough money. I have great news – you don’t need to be rolling in cash to start an ETF investment portfolio.
ETFs have no minimum investment amount, and depending on which online broker you use, you can get started with as little as $50 (plus any brokerage costs).
Easy to access
The internet makes our lives easier in so many ways, investing being one of them!
Using an online brokerage account, you can buy or sell ETFs during the trading day (generally 10am – 4pm, Monday to Friday). A couple of examples of online brokers are CommSec and Nabtrade. Visit their websites for more information on how to get set up if you don’t already have an account, or read our step by step guide here.
Once you’re set up and logged into your online account, find an ETF by typing the three or four letter ‘ticker’ code. Ticker codes are unique to each ETF (highlighted in the green box are the ASX ticker codes for BetaShares’ three ethical ETFs) and complete your investment.
The beauty of diversification
Diversification is something that even veteran investors need to keep in mind to see their portfolios through the highs and lows of the market over time. Savvy investors are always looking for opportunities to diversify by spreading their investments in order to reduce (or spread) risk.
ETFs are a popular way to add diversification to an investment portfolio. Instead of selecting one or two companies, ETFs offer exposure to broad investment areas, including Australian shares and global shares.
For example, instead of picking one or two Australian companies, you may look at using an Australian shares ETF such as BetaShares A200, which gives you exposure to the largest 200 companies listed on the ASX, instantly. Just as easily, if you wanted to diversify away from Australian shares, you could add a portfolio of leading global technology companies using an ETF.
As with all investments, before diving in it’s important to be aware that ETFs come with certain risks. One risk is that an ETF’s performance is tied to the underlying assets on which it is based. So, for example, if you choose an ETF based on the NASDAQ-100 index, and that index dips, your investment will see a decline in value.
Where to next?
Feel free to get stuck into some of the helpful ETF resources on BetaShares website or sign up to the 6 part email course. As always, feel free to drop me an email (firstname.lastname@example.org) if you have any questions or comments, or read our step by step guide here.
Ele de Vere is a guest contributor to Ladies Finance Club, you may recognise her from the ETF 101 session at LFC’s live Sydney event! Ele is part of the team at BetaShares, a leading Australian ETF Manager. A kiwi turned Sydneysider, Ele never thought that her transfer across the ditch would also mean stumbling into her passion…investing. Sharing from her own experiences, including the falls and fails, she hopes to encourage more millennials to shift investing out of the ‘too hard basket’, and start their own journey towards long-term wealth creation.
This article is general in nature and is not a recommendation to make any investment. This information does not take into account any person’s objectives, financial situation or needs. You should consider the appropriateness of the information taking into account such factors and seek financial advice. BetaShares Capital Ltd ACN 139 566 868 AFSL 341181 is the issuer of the BetaShares ETFs. Read the relevant PDS at www.betashares.com.au and consider, with your financial adviser, whether any product mentioned is right for your circumstances. Investing involves risk and investment value may go down as well as up.