These days, the financial markets look and sound more like a group of messy, drunken 50-year old women than it does an upstanding, regulated system – hard to understand and embarrassing. Why? Well, who the f*ck knows, but it seems a group of New York banker – wankers decided to create complex algorithms, portfolios and farcical numbers that make up today’s land of derivatives and trading. Some of this sh*t doesn’t even exist in tangible form. Just watch “The Big Short” and you’ll know what I mean. Scary stuff.
Me personally, well, I’m not a banker – wanker and never will be (god, could you imagine!), so I choose to ignore the complex crap and keep it simple. I pick low-cost, low-risk, long-term exchange traded funds, also known as ETFs and they are perfect for my financial goals. You see, I’m a risk nanna and to some people, may just be the most conservative investor going around! Unlike the speculative investors of Bitcoin and day-traders, I choose a future of certainty, and a future that will provide for me and my family. I’m in it for the long game, not short-term wins.
It’s no secret that I am a huge (ok, massive) Warren Buffett follower and have hung on his every investment-word since my financial rut recovery 7 years ago. It was his advice and investment success which led to my first real investment obsession – ETFs. You see, ETFs are a type of exchange traded product and put simply, an ETP is a grouping of the top performing products in a share market. These products are generally packaged together by investment companies to sell to potential investors via the share market. The Australian Stock Exchange (the Australian share market) has over 100 exchange traded products which include exchange traded funds, currency, cash and commodities.
The attraction of ETPs – exchange traded products – is that they’re low risk and track or benchmark the assets within it. For example, an ETF – exchange traded fund – may include the top 50 performing companies in Australia, which means it ‘tracks’ their performance to create the value of the ETF. The fund never tries to outperform these companies or its assets, which reduces their risk. I don’t have experience in exchange traded commodities, cash or currency (ETCs), but I do have experience in an exchange traded fund by the name of Vanguard – my pride and joy!
Vanguard has many different types of funds available, but I chose the basic Australian ETF and basic international ETF, perfect right? Each of these funds can be purchased on the Australian Stock Exchange under the acronyms – also known as ‘tickers’ – VGS (International) and VAS (Australia), and are a great way for beginner investors to enter the market. VAS is made up of companies like Commonwealth Bank, Westpac Bank, BHP Billiton, CSL, Telstra and Rio Tinto, whilst VGS is made up of companies like Apple, Johnson & Johnson, Amazon, Facebook, JPMorgan and Microsoft.
For the nosey-parkers after the numbers, I have so far invested $7,500 in Vanguard ETFs and made approx. 14% return. Put in perspective, your online “high interest” ING account is earning about 2-2.8% return, so ETF investing is well worth it. I also reinvest any dividends or payouts back into the fund to take advantage of compounding interest – remember ladies, it is your secret weapon! As I always say, “keep a long-term view, for long-term gain, and the investment will do the work for you”!
RELATED BLOG: What do you actually want to achieve, when you cut out the BS and fantasies? This may include saving an extra 5% of your income each month, finding ways to cook more at home, paying off your credit card debt, or making your first (or second, third, fourth) share market purchase. Make it clear, shout it loud and proud! If you’re so inclined, write them down, include them on your vision board, heck – put them on your fridge. Make sure you keep yourself accountable.
If you’re a new investor and looking to make the leap into exchange traded funds, here are my (refer to disclaimer) TOP THREE reasons for choosing Vanguard ETFs:
- Low-cost, low risk and no minimum purchase amount, it’s the perfect entry point for a beginner with a smaller investment amount available. You could buy one share in the ETF or 100 shares (or more) depending on your level of savvy! I always suggest buying as many as possible at a particular time to take advantage of the flat rate brokerage fee. I’m with Westpac and their brokerage fee (i.e. their fee to buy the shares on my behalf) is $19.95 per purchase, no matter how many shares I’m buying.
- The ETF is already diversified so any losses in one company is offset by the growth of another (remembering that the fund is made up of lots of different companies). You don’t need to do any thinking – it’s all done for you!
- Like individual company shares, the ETF returns a proportion of the profits to their investors (you and me!) every quarter. These are known as dividends and with my current investment, equates to approx. $60 per quarter. This amount will continue to increase as the value of the funds and my investment increases.
Fearless Female Traders