Why I’m obsessed with Exchange Traded Funds

Apparently you can teach an old dog new tricks. How do I know this? Because I was the dog and I’m kinda happy about my new trick. Hot Pilates. Now before you roll your eyes and tell me it’s like a petri dish for bacteria, you have to hear me out, there is some logic to this blog. I promise!

 

If you have been following my blog for the last year you would know that I got married in 2016 and like any normal vain female, I was desperately trying everything and anything to tighten the toosh and flatten the tum. The problem was, I’m pretty set in my ways and for a long time haven’t been very open to new things.

 

But like any stubborn Gen Y, I eventually gave in and OMG, I’m in love. So, where am I going with this? The fact is there are so many things that we put off because we simply don’t understand it, people we don’t get to know because we misunderstand them and risks we don’t take because we are misinformed. The same could be said for shares. I know so many people, friends, colleagues who don’t invest in shares because they’re scared, it’s too hard, it’s too risky, “they say”.

 

Recently I have been subtly spruiking ETFs – exchange traded funds – and not because they make me sound smart but because they have been my little secret nugget for getting into the market. So many people have asked me, but what do you ACTUALLY do? Like, you’ve shown us the mechanics of it, but what do we do once we have an investment account set-up, downloaded the app and ready to transfer money to shares? Possibly the most common question I get asked!

 

Here it is – the 7 things you need to know about my babies – ETFs:

1. Easy way to get into the market versus investing into a managed fund – it’s kinda like dipping your toes in the ocean but not going the whole way in. Official definition for ETFs is that they “represent underlying assets” – what this actually means? An ETF is made up of a selection of shares or assets within the market. For example, some ETF’s are made up of the top 200 stocks listed on the Australian stock exchange. While others are made up of precious metals or commodities (oil and gas etc). I chose Vanguard ETF, which represents shares and therefore companies trading on the exchange. Stones and gas are not my jam.

 

2. It’s not a lolly pick-and-mix – when I say that they are made up of shares or assets within the market, this doesn’t mean that you go and handpick them like you would your jaffas and jelly babies at the movies. They are created by the ETF holder based on the type of assets they represent.

 

3. An ETF has an inbuilt hedging system where it will include shares that are high risk with high return and low risk with low return to help reduce any losses. Not on the same page? Just know that “hedging” is a good thing and is important when diversifying your investment. Think of it this way – if you put all of your eggs in one basket and you drop the basket, you lose all of your eggs. If you “diversify” and put a few eggs in lots of baskets the effect of one basket breaking isn’t going to be as dramatic.

 

4. ETFs also use a three letter ticker like other shares on the exchange. This means that when you are looking at ‘watching’ shares on your investment app, you can easily search for your ETF baby too.

 

5. They have lower fees than your traditional managed fund.

 

6. You can invest in both domestic and international ETFs via the Australian stock exchange. Pretty cool, huh!

 

7. There is still risk and with any investment there always will be. For me personally, this is what I felt most comfortable with when I was first investing in the share market. I don’t have the time to track or spend hours researching companies. Using an ETF or managed fund means that somebody else is doing the work for me!

exchange traded funds

(Image: iStock)

 

I guess you want to know what I have done then? Well, insert disclaimer – I invested in ETFs because it was what I wanted for my investment portfolio. It may not be the best option for you and your financial situation. I choose champagne, but you might prefer red wine – perhaps think of it like that before making your decision.

 

OK, OK, so I invested in VGS – Vanguard International Shares ETF and VAS – Vanguard Australian Shares ETF. It’s not new news that I chose Vanguard because it is a favourite of my main man Warren Buffet, but there are other ETFs out there that may be more your groove.

 

If you want to start investing but don’t know enough about individual companies and their shares, why not try an ETF?

 

Fearless Female Traders

xx

3 responses to “Why I’m obsessed with Exchange Traded Funds

  1. From Baz››

    Warren owns Vanguard?

  2. From Jenny››

    What is the minimum amount of money you need to purchase VGS or VAS?

    • From Bryanna McDermott››

      Hi Jenny! Great question! There is no minimum for purchasing shares but it will depend on which broker you purchase through. For example, I bank with Westpac and I use the Westpac investing app. When I purchase shares through the app, there is a $19.95 brokerage fee per purchase. I could buy 1 x VAS share (market price today is $76.94) which would cost me $76.94 + $19.95, total = $96.89. If I’m buying more Vanguard shares, I try to do this every 3-4 months or so, and put in around $300 – $500 each time to capitalise on the $19.95 brokerage fee. The brokerage fee may be more/less depending on which one you use, but I like to keep all my banking with the one institution – makes things easier!

      Another way to enter the market is to use the Acorns App. Have you heard of this before? It connects to your bank account of choice and rounds up purchases you make to invest in an ETF (Exchange Traded Fund) which is what Vanguard is. An ETF is a great low cost option for entering the market and because it is a selection of companies, it already has inbuilt diversification. Perfect!

      Let me know if you would like more information or want me to write a specific blog for you – I’d be more than happy to do it!

Leave a Reply

Your email address will not be published. Required fields are marked *