Everyone talks about ETFs – but what are ETFs and why should I care about buying them? How can ETFs help me get rich and build my wealth?
Follow me on Instagram @raycorc
In this week’s video I explain in plain English what they are and why you might choose to invest in them.
Majority of my ETFs are invested with Stockspot.
They’re a great option for all investors, but in my opinion they’re awesome for beginner investors because they can get you started in the stock market with less risk and more reliable returns.
Why do all these personal finance gurus bang on about ETFs all the time?
If you have heard about investing in ETFs but you have zero idea about where to start, how to buy them, where to buy them, how to pick the right one, what to look for – You’re going to love this video.
What are ETFs?
ETF means exchange traded fund, which means they can be bought and sold on the stock exchange.
ETF’s are basically like buying a bunch of companies in the one stock. So instead of buying one share of the top 100 companies in the USA (which would be very expensive), you can buy one share of the ETF, which could be like 60 dollars, but you’d get the exact same exposure, just on a smaller scale.
ETFs = Generally are passively managed. Most commonly will mirror an index or the top X companies in a sector or region (tech, asia, emerging markets)
Mutual funds = Actively managed
Because they actively manage them, mutual funds charge higher fees to do so – alluding to the fact they’ll work harder to get better performance.
Disclaimer: As always, I’m not a financial advisor and this is general information for entertainment purposes. Do your own research.
Related Topics: Exchange traded funds, ETF investing, stock market, what is an ETF, investing for beginners, how to invest, ETF explained, ETF Australia, best ETFs, ETFs explained, investing in ETFs, Vanguard ETF, investment ideas, learn to invest, how to invest in stocks for beginners, Vanguard index funds, ETFs vs index funds, what is an ETF youtube, what is an index ETF, investing in ETFs for beginners uk, ETF investing strategies,ETFs to invest in 2021, stockspot, best ETFs 2021
Good day, Ray Corcoran here in this week’s video, we’re going to be talking about E-T-Fs. What are they, why does everyone keep recommending them? How do they fit into your overall portfolio and how do you get started in investing in them?
So there’s been a lot of personal finance gurus that always bang on, about investing in index fund, investing in E-T-Fs. But if you don’t know what they are you are left scratching your head, wondering how do I get started? Can I learn more about them? So that’s the purpose of this video.
I’m going to explain the basics and the fundamentals of what they are and what they can do for you more importantly. And as always, if you liked the video, give it a like, liking the video, helps it, push it out to a bunch of other people, new people with YouTube, their amazing algorithms.
So I really, really appreciate that. Also, if you want to subscribe, please consider subscribing. I do weekly videos on making money, investing money and saving money through my favourite topics. So if you’re interested in that sort of stuff, please consider subscribing.
So what are E-T-Fs? So E-T-F stands for exchange traded fund. So that means it’s traded on the stock exchange. E-T-Fs are, if you invest in individual stocks, it can be quite high risk. If the company goes well, you really happy if it goes down you can lose a lot of money quite fast now, E-T-Fs are buying instead of one stock, you buy a bundle of stocks and that bundle could be for example, the top a 100 companies in Australia, all the top 500 companies in America and they have all these different combos, if you will of … and groups of companies that you can invest in.
So if you were looking to get the exposure to the top 500 companies in America, the S and P 500, for example, buying each one of those stocks would cost you thousands, thousands of dollars. But what E-T-Fs allow you to do is you could pay 50 bucks or a 100 bucks or whatever it is, and you can get exposure to a whole bunch of companies, depending on what type of E-T-F you bought.
And the result of that is you get a lot less risk because instead of putting all your eggs in one basket your putting, spreading your eggs cross. It could be 30 companies, 50 companies, a 100, 500 companies. And you’re generally making a bet on that sector or region. So you can have E-T-Fs for emerging markets, a group of, a cluster of companies in emerging markets.
You can also have E-T-Fs for certain sectors. So tech or pharmaceuticals, there’s E-T-Fs around a sustainable companies. So if you really want to invest in and back and support sustainable companies, you can do that.
So why don’t you buy an E-T-F? There’s a whole bunch of benefits of buying them. So I’ve already alluded to it, but the first one is you get less risk and diversification. So you get exposure to a bunch of companies, rather than putting all your eggs in one basket. This makes it really good for someone that is a … it’s good for seasoned investors and beginner investors, but it’s especially good for beginner investors because you don’t need to be a stock-picking genius to get some decent returns. You will probably get low returns then if you pick an individual stock that goes crazy, but you get more certainty and reliability. There’s always risk, but it’s probably a little bit less risk because you’re not just betting on one, you’re betting on a group of companies and they kind of can all average each other out.
And if that bucket of companies all generally does well, you might make 6, 7, 8, 9, 10% return each a year. And obviously that fluctuates, and it depends on what you pick, but you can get quite safe returns every single year. You might not get a 20 or 50% return from picking a stock that goes crazy.
However, you can get quite a reliable 6, 7, 8, 9, 10% return, and for a beginner investor, I actually think that’s a much better option considering, if you don’t know anything about buying stocks or valuing companies or assessing markets, it’s an excellent option. That’s why so many personal finance gurus always talk about investing in E-T-Fs.
The next benefit is the tax benefit. So it can be more tax efficient. Now I’m not a financial advisor or CPA or accountant or anything like that. So you need to check for your individual situation. But what that will allow you to do is … often they’ll find that because they’re not buying and selling stocks, individual companies all the time within that fund, you do have less, capital gains, taxable events and all that sort of stuff, but you don’t really need to know that your accountant will help you sort that out. I want to let you know that you can, that can be a bit more tax efficient as well.
The next thing is the low entry point. So there’s a low barrier to entry. You could invest in E-T-Fs for a few hundred dollars. You don’t have to compare that to say a property if you were to go buy that property you can pay tens of thousands of dollars in fees and stamp duty and all that sort of stuff to acquire that asset with E-T-F. So you can get started at really low amounts, a hundred dollars, five hundred dollars, that sort of stuff. And it means that you can get your money working for you without having to save up a huge amount of first.
Another reason is performance. So there’s actually a bunch of studies that have been done. And what they found was when they compared most E-T-Fs are basically passively managed. So there’s not someone … They’re designed to track an index, maybe a top a hundred companies in Australia, for example, and it just kind of mirrors that. So it doesn’t take as much active effort from that fund to get whatever performance it will just follow what the market does. Now, if you compare that to a mutual fund, basically with a mutual fund, they’re trying to beat the market average and they’ll do lots of buying and selling, and they’re trying to get the best outcome, and they’re doing a lot more work to make that happen.
Now, the catch of that is you can pay a lot in fees for people to do that. And what they found in a lot of studies is that the passively managed index funds and E-T-Fs, they actually outperformed the more actively managed funds. And they found that even a small increase in fees can make a dramatic impact long-term. In terms of how much money you make off the back of that investment.
And with some of these mutual funds, the fees can be upwards of, a half a percent and up, and then you can have E-T-Fs. So that can be as low as 0.1% for some of them. So they all vary in terms of their fees, but the fees are a major factor to decide whether to go ahead with certain funds and E-T-Fs.
The thing that I like about E-T-Fs is I think they’re really, really perfect for you to look at when you’ve paid off all your debt, starting with the most expensive, the highest interest rate debt, all the way down to the lowest, at least the bad debt. Then you’ve saved up your savings buffer of maybe 3, 6, 9, 12 months. Plus you’ve got a bit of a cash buffer, your emergency fund. Then the next step most people make is starting to make some of your initial investments.
Now, where do you start if you don’t know anything about stock trading, or you might not know much about property, you might not know much about business. E-T-Fs are a really good option for you at this point, in terms of how do you pick which E-T-Fs to go with? You may look at some of the more popular ones, ones that track the like Vanguard Australian shares, which we’ll talk about in a sec, that tracks the ASX 300, the top 300 companies in Australia. That’s by Vanguard. You may also look at funds that track the S and P 500, which is a top 500 companies in the states. But basically there’s a whole bunch of different ones you can look at.
Some of the things that people use to assess whether it’s a good fun to go with. It could be things like past performance, even though, everyone says it may not be a good, reliable indicator of future performance, but they do look at that. They look at the reputation of the fund. So you’ve got people like Vanguard, who have a very good reputation for good performance and generally lower fees and as I’ve said, the percentage of fees and what they call the expense ratio is crucial. We want that as low as possible, the performance to be as high as possible and the fees to be as low as possible, that will give us the best bang for our buck essentially.
The next thing people do to decide which E-T-Fs that would go is also, what market they think is going to go up, or which market they feel is poised for growth. So you might be very personally very bullish on tech stocks. And you may look at a tech E-T-F, which might have the top a hundred tech companies all wrapped in an E-T-F. So that might be something you invest in that you invest in, you may be really particularly bullish on a certain region, you might look at Asia, you might look at emerging markets, you might look at Australia, you might look at the states, you might think of a particular region, maybe ready, about to start performing really, really well, or it’s already performing well and you think it’s going to go even better, that might be a major reason as well.
In terms of how to buy them it’s pretty straightforward. You can go to a … directly to someone like Vanguard. You can also go through a brokerage. In terms of brokerage sites I’ll put a bunch on the screen. There’s a whole bunch of different ones. You know, they all have different fees as well in terms of how much they charge you per trade, but basically at a high level, what you do is you would go on their website, create an account, find the ticker symbol of that E-T-F. So it could be a three typically a three character code for that E-T-F. So say for Vanguard, Australian shares, it’s a V-A-S.
You would type that in, say I want to buy some of that. You would type in either the dollar amount that you want to buy, or the quantity of shares that you’d like to buy, and then you would place your order and, you pay for it. And that’s pretty much at a simple level. That’s pretty much how it works in terms of the E-T-Fs. The first main one that I own is the I-Shares global 100 E-T-F by BlackRock. So basically that tracks the top 100 companies in the world. And, I think it was … I’ll put it on the screen but it was about twenty two thousand dollars, in that the second one is a Vanguard Australian shares. So that particular one, I think it was from memory about a hundred thousand dollars that I’ve got in that particular one and that tracks the top 300 companies in the A-S-X.
And the third main one is the Ishares M-S-C-I emerging market E-T-F. So I think that’s I-E-M from memory and I’ve got about 42,000 roughly in that particular one.
So by buying, and these all kind of perform at different paces, but I’ve got money in each of those and that’s all through stock spot. I’ll put a link to them below if you’re in Australia, they invest that for me. I transfer money to them and they kind of do the split and the portfolio rebalancing and a whole bunch of that stuff. And that kind of gives me exposure to that. And I make several percent on that every single year. And the thing I love about it is, I don’t need to be an individual stock picking Wiz to make those returns.
For me, I’m focused on my business. That is 95% of my time. So when it comes to stuff like this, I don’t want to spend hours and hours and hours learning about individual stocks. I have literally not got the time, same for property. I get a buyer’s agent to help me save time in terms of selecting property. I like trading, having my main focus and everything else I like getting help for or, I don’t mind paying a small fee to people to help me select certain investments.
So I hope you have found that useful if you have any questions, let me know if you’re looking for, by somebody, let me know, have you sort of pointed in the right direction, not financial advice course, but you got any questions about this video or future videos that you’d like to see, please let me know. And other than that, I’ll see you on the next video. Cheers.