You may have heard of stocks, exchange-traded funds (ETFs), and listed-investment companies (LICs), but what exactly are these options and how do they differ? In this Bitesize, Alec and Bryce define the terms for you – so you won’t ever be confused again!
Stocks represent ownership in individual companies. When you invest in stocks, you become a shareholder in that company and have an interest in its success. Historically, stocks have been one of the best-performing asset classes, but they are also known for their volatility.
An ETF is a basket of securities, such as stocks or bonds, that trade on an exchange like a stock. When you invest in an ETF, you are buying a share of the entire portfolio, rather than investing in individual securities. This diversification helps to mitigate risk in your portfolio, and is one of the reasons ETFs have become increasingly popular.
LICs, also known as closed-end funds in America, are similar to ETFs in that they offer diversification by investing in a portfolio of securities. However, LICs are actively managed, which means they are managed by a professional fund manager who makes decisions about which securities to buy and sell.
Listen (or watch) the full episode here:
Make sure you don’t miss anything about Equity Mates – visit this page if you want to support our work.
Want more Equity Mates? Come to our website and explore! You’ll find information on our full network of shows, including our Equity Mates Investing Podcast, book recommendations, blogs, news, and more.
*****
In the spirit of reconciliation, Equity Mates Media and the hosts of Get Started Investing acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today.
*****
Get Started Investing is a product of Equity Mates Media.
All information in this podcast is for education and entertainment purposes only. Equity Mates gives listeners access to information and educational content provided by a range of financial services professionals. It is not intended as a substitute for professional finance, legal or tax advice.
The hosts of Get Started Investing are not financial professionals and are not aware of your personal financial circumstances. Equity Mates Media does not operate under an Australian financial services licence and relies on the exemption available under the Corporations Act 2001 (Cth) in respect of any information or advice given.
Before making any financial decisions you should read the Product Disclosure Statement and, if necessary, consult a licensed financial professional.
Do not take financial advice from a podcast.
For more information head to the disclaimer page on the Equity Mates website where you can find ASIC resources and find a registered financial professional near you.
Get Started Investing is part of the Acast Creator Network.
Alec: [00:00:07] Welcome to Bitesize on Get Started Investing feed. In this series we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes.
Bryce: [00:00:22] So by the end of this episode, you should be able to identify all the different investing options. So without further ado, Ren.
Alec: [00:00:30] Let's start with the most common and probably the most well known, which is stocks. And really in a simple sense. Each stock that you buy is a share of a company. And that gives you an ownership stake in that company. And then if the company does well and makes a profit, you are entitled to a portion of that profit as an owner. But if a company does poorly, then you were a portion of that loss and that is reflected in the movement in the share price. So yeah, the first and the most common one is just buying part of a company as a stock.
Bryce: [00:01:10] Yes. Does every company have the same amount of stock available?
Alec: [00:01:15] Good question. No, no. So companies can decide how many shares they want to split themselves up into. I guess, you know, you could have a company with a million shares and then there would be another company with a billion shares. Hmm. That's why you sometimes get a company like Berkshire Hathaway that has a share price of $300,000. And at other times, you get a company where the share price is, you know, ten bucks a share.
Bryce: [00:01:48] Hmm. Two things I want to pick on. Pick up on what you just mentioned there. The first was when you buy a company or a stock in a company, you become the owner of that company or part owner of that company. And that, I think, is one of the most exciting aspects of investing. It gives us commoners the ability to actually invest in some of the world's biggest and best companies, be part owners in these companies, and profit from, I guess, their relentless drive and journey into it to be the best company that they can be. So I know that that's something that you certainly talk about and think is one of the best aspects of buying stocks is, you know, the ability to buy in to these awesome companies from, I guess, our lounge room chairs.
Alec: [00:02:36] Yeah, 100%.
Bryce: [00:02:37] What's an ETF?
Alec: [00:02:38] Yeah, exchange traded fund. Now, in a real simple sense, you buy it like you do a share. So the same process on stake or on any platform you go in, you buy a unit or multiple units at a certain price. The difference is, rather than it being a company, it's a fund. And that fund then uses that money to go and buy whatever the fund holds. So you might have a fund that holds gold. And whenever you buy a unit, it uses your money to go and buy more gold. Or it might be a fund that holds a whole bunch of energy companies. And when you put money in, then use that money to go and buy a bit of a whole bunch of energy companies. It's a good way to get exposure to a variety of companies or something like gold or potentially something like real estate. It just opens up the options that are available to you as an investor. But there is one last option that you can invest in, and that is a listed investment company. And they are companies, but their whole purpose is to invest money. So essentially what you do is you buy a share in that listed investment company. They take the money and then they go and try and invest and try and make money from the market for you. So that's the third option. You can buy stock directly. You could buy an ETF or you could give your money to a professional investor and back them in to invest on your behalf.
Bryce: [00:04:23] If you enjoyed that Bitesize, you'll find a link to the full episode in the show notes.