What’s the one ETF I should invest in for life?

Bryce: [00:00:30] Welcome to another episode of Get Started Investing, a podcast where we attempt to answer the most common money and investing questions coming from the community to help us all become better investors. Now, if you are joining us for the first time, welcome, We strongly recommend that you scroll up and start at episode one. Now, while we are licensed, we're not aware of your personal circumstances. All information on this show is for education and entertainment purposes only, and any advice is general advice. But with that said, my name is Bryce, and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:01:00] I'm very good, Bryce. Great to be back. We have just finished our Cost of Living series. Yeah. And we blew our cost of living and actually took a holiday. 

Bryce: [00:01:10] We did take a holiday. Yet both of us hit up Europe for. 

Alec: [00:01:13] Not Together. 

Bryce: [00:01:14] Not together. 

Alec: [00:01:15] We don't do everything together. But contrary to popular belief. 

Bryce: [00:01:18] Yes, but we did. We did enjoy our time off in Europe. So it was nice. But yes, you're right. 

Alec: [00:01:27] You're looking very tanned. I'm looking kind of red. 

Bryce: [00:01:32] Well, you said you experienced backpack days of rain without packing any winter clothes. 

Alec: [00:01:37] Yeah. So all of the stories of the European heatwave, I packed one jumper and no wet weather gear and then spent three days in London and a week in Berlin where it just rained. 

Bryce: [00:01:49] Unbelievable. Classic UK vibe. 

Alec: [00:01:51] That Italy was 35 degrees and sunny. 

Bryce: [00:01:54] But anyway, not enough about Europe.

Alec: [00:01:56] That's not people. If people want to get FOMO about European holidays, they just need to open Instagram. So true. Let's get on with what we're talking about today. We've got a question from the Equity Mates community about one ETF. If you just, we're going to pick one ETF alive. 

Bryce: [00:02:13] Let's take a listen. This question is coming in from Dylan and then we'll get stuck in. What's the best? Even with all things considered. 

Alec: [00:02:21] That you would advise. 

Bryce: [00:02:22] One of your clients for passive investing to purchase dollar cost.

Alec: [00:02:26] Averaging that one. 

Bryce: [00:02:28] NFT for the rest of their life? 

Alec: [00:02:31] A good question. The ETF HFT class up, we've all. 

Bryce: [00:02:36] Classically overcame that. 

Alec: [00:02:38] So it is fortuitous. And some may say we chose Dylan's question because of the timing. But our book Don't Stress Just Invest hit shelves last week and we essentially wrote a whole book to answer this question.

Bryce: [00:02:54] We did. So firstly, if you are in a position of just starting your investing journey and trying to figure out what is the easiest and simplest approach to building wealth over the long term, you don't feel like you have a whole heap of time or skills to spend researching individual stocks. This book is for you. Don't stress, just invest. So check it out. We do specifically talk about options for a one ETF approach for the rest of your life. 

Alec: [00:03:19] Yeah, and for people who are wondering the difference between the first book get started investing and the second book Don't Trust, Just Invest, Get Started. Investing was kind of everything we learned over the four years of doing equity mates and Get Started Investing. It was very much designed to be the start of people's investing journey and, you know, go on and keep reading and keep learning and keep listening to the podcast. Don't stress, just Invest is a little bit different. It's been designed, it's been written to be the beginning, middle and end of your investing research. But it's for all those people in your life who won't listen to this podcast but would stand to benefit from the stock market. So if there's someone in your life that's only ever going to rate one investing book, this is the book. 

Bryce: [00:04:04] Well, I'm pretty sure it's on discount as well already on Amazon and book Topia. So jump over support equity rates where you can and buy this book for yourself, friends or family.

Alec: [00:04:16] But Father's Day this weekend and if you're listening in Australia, great book for dad. 

Bryce: [00:04:21] That's it. Anyway, let's actually answer the question for doing so. 

Alec: [00:04:26] So there's a few things to think about. And then there's I guess we have a set of criteria that we would apply and then we'll actually talk about some actual examples of ETFs that you could consider both from Australia and from around the world. But Bryce, let's start with what we would think about when answering this question. And there are four key considerations. 

Bryce: [00:04:50] Yeah, so the first one is the time horizon and what do we mean by that? So the ETF needs to match the time horizon that you're anticipating investing over. 

Alec: [00:05:02] Depending on your investing goals, different investments are suitable. So if you want to, if you're saving for a house and you want to pull the money out next year, you want to invest in something that you'll get some return, but not a lot of risk. And you know, Betashares have a high interest cash ETF where you get some cash, but you're not going to lose that money, that sort of asset is appropriate for that time horizon. But if we're talking about setting ourselves up for decades to come, um, high interest cash isn't appropriate because you're not going to make as much as some other assets that might be a little bit riskier but will earn more. So that's when you're looking at things like stocks and property and stuff like that. And this question is dollar cost averaging for the rest of your life. So we want to be looking at assets that are a little bit riskier but have the potential to grow a lot more as well. 

Bryce: [00:06:02] I.e. stocks. Perfect, perfect. So the second one is second consideration is diversification. If you're only choosing one investment for the rest of your life, you want to make sure that you are spreading the risk by not putting all of your eggs in one basket, putting all of your eggs in one basket. If that basket of eggs doesn't perform very well, then you're not going to be performing very well. 

Alec: [00:06:27] And that's a confusing thing because we're saying you're only choosing one thing for the rest of your life. So how can if you're only choosing one egg, how can you have one egg in multiple baskets? But that's the beauty of ETFs is that they are basically a RAPA and you can buy lots of different things within that wrapper. The classic example I think we use the analogy in the book is the fruit salad. Gone are the days where you have to just buy one apple or one banana ETFs, the metaphorical fruit salad where you get a slice of an apple and a slice of banana and everything else. And so if you're just going to choose one ETF for the rest of your life, you want it to have slices of different countries, not just Australia and not just America. You want it to be global and also maybe slices of different assets. You don't have to go all into stocks. You can have a little bit of profit. A little bit of bonds, a little bit of whatever else you want. So diversification in this case, you still only have to buy one thing, but it's by the fruit salad. Don't choose one piece of fruit. 

Bryce: [00:07:27] Yeah. So then thirdly, and perhaps most importantly, it depends. But is is the cost of the eighth and this isn't the price you're paying through your brokerage platform in terms of $20, is it a $50 ETF? Is it a $100 ETF? It's not the price of the ETF that we're talking about here. It's the underlying cost or the management fee that the ETF provider or the index charges on a yearly basis. Now, we know that fees eat into your returns over the long term. So ideally you're finding the cheapest possible way to get the investment that you want. It's pretty simple. You want your face to be as cheap as possible. If you think about money coming out of your investment returns every year for 40 years. The overall impact of that can be quite substantial. 

Alec: [00:08:19] Yes. So there's two costs the management fee, the percentage that the provider charges and then the brokerage cost to buy that. If your dollar cost averaging every fortnight for the rest of your life, you want to make sure that the cost to buy it is as low as possible.

Bryce: [00:08:34] Yeah. And then finally, it is the return expectations. And what do I mean by this? Similar to what we were actually just saying at the top with the time horizons. But you want to be choosing an asset class that over a long period of time has historically delivered, you know, meaningful returns. And that doesn't mean they need to shoot the lights out. Ridiculous. Highly leveraged. A lot of jargon there. But you want an asset class that has historically just generated solid returns over a long period of time. 

Alec: [00:09:05] Yeah, it's what we said earlier. Yeah. So. Okay, so there are some things to think about then. I guess that leads to what we've considered them and what our criteria when we are going to choose one ETF for the rest of our lives. 

Bryce: [00:09:20] So we talk about time horizons and return expectations. And so for us, that means we want access to the stock market. We want access to investments in companies because that's what's going to give us good growth potential over a long period of time. Now, Wren gave the example there that ETFs are investing in a fruit salad, you know, different types of fruits, and we want 80% of our ETF or 80% of our fruit salad to be invested in the stock market in companies. That's the first consideration we have when choosing an ETF. 

Alec: [00:09:52] Yeah. So the second criteria for us is that we just want it to passively track the overall stock market. These days you'll find active ETFs that have an active fund manager behind them making decisions about what they're going to buy and what they're going to sell. If we're thinking long term, we can build above average wealth with just average stock market returns just year after year, compounding away. So the second thing that we're looking for is just a passive ETF that tracks the stock market.

Bryce: [00:10:22] Nice. Number three, and this comes to the diversification point is we want a global focus. We want an ETF that is invested across multiple countries that gives us the diversification away from just being invested in one country or one asset class. So true global focus is what we're looking for. 

Alec: [00:10:42] And then finally, phase we high, high phase here we're looking for an annual management fee of less than 0.5%. The good news is there's plenty of products in whatever country that you're listening to except in New Zealand. New Zealand has a lack of ETFs. The good news is if you are investing in New Zealand, most of the time you can invest in the Australian and the US market. But I think there's a tax quirk in New Zealand that means there aren't heaps of. Yeah, but wherever you are in the world there are ETFs that will charge you less than 0.5%. So keep an eye out for them. So price, that is the criteria. At least 80% invest in the stock market, passively tracking the overall market globally diversified and an annual fee of less than 0.5%. Yeah. Let's take a quick break and then actually talk about some ETFs that meet that criteria. All right, We're back. We are answering a question from Dylan, who submitted the question via equity, Match.com slash contact. You can leave a voice note there. You can hit us up via email, ask, get equity, Match.com, jump on the phone. This helps always to ask questions. But this was a good one from Dylan. And it was timely because the question was, if you were going to choose just one ETF for the rest of your life, what would it be? And in our recently released book, Don't Stress, Just Invest. We answered that exact question. Hmm. 

Bryce: [00:12:17] Well, we're almost going to answer it now as well. 

Alec: [00:12:19] Yeah, but please still buy the book. There's still heaps of other good stuff in the book. 

Bryce: [00:12:23] Well, we tell you in the book, is it then actually a strategy around how to invest in that over a long period of time and how to automate it so you don't have to think about it. But we know what our criteria is. What are some examples, both here in Australia, in the US and in the UK for our international listeners, examples of an ETF that match our criteria. And the first one is perhaps one of the most popular within the equity mates community and those in the fire community. Financial independence retire early and that is Veda. H.J. by Vanguard. It's called the Vanguard Diversified High Growth Index ETF. Now, in one trade, this ETF gives you 80% access to the stock market. It passively tracks indexes and it gives you a global focus and is well below our annual fee of 0.5%.

Alec: [00:13:14] Yet I think it's worth just clarifying. So the idea is Australia. Yeah. So we're starting with Australia and we're not. This list is by no means exhaustive.

Bryce: [00:13:23] No, no, not at all. Again, it's an example. 

Alec: [00:13:25] We're going to throw out a couple of examples, but they aren't the only ones. So it's, you know, you can do your own research, general advice only or all of the appropriate disclaimers. But you mentioned Vanguard's Diversified high growth index, which is particularly popular with the fire community, the financial independence, retired, early community, a couple of other ETFs that make that criteria from Betashares Betashares diversified all growth ETF, DHHS, and then they've got an ethical version of that ETF Betashares Ethical diversified high Growth ETF. The Z. Z. F There are a couple of examples from Australia.

Bryce: [00:14:06] Yeah. And to give you just a bit more insight into the underlying investments here and why they match when we talk about getting global exposure and then being at least invested 80% in stocks. The one that Ren just mentioned there, DHHS, the Betashares one, its underlying assets give you exposure to Australian equities. 35% of the ETF, U.S. equities, 38% of it developed markets and that's 20% and then emerging markets at 6%. So there's well over 80% giving you global access to stock markets around the world in one easy, simple trade. 

Alec: [00:14:46] So that's Australia. But the great news Bryce is that wherever you are in the world, investing is more and more becoming just a uniform thing, which means our podcast is applicable wherever you are in the world. Yes, we all look at brokerage platforms that look incredibly similar and we all invest in products that also look incredibly similar. And so the criteria that we outlined isn't just applicable to Australia, it's applicable wherever you are listening to this. So let's go to the United States. There's a couple again, this is just a select handful of so many ETFs that make this criteria now, but a few that you can go and research and see if they fit your investing goals. The Vanguard LifeStrategy Growth Fund V SGX, the iShares Core Aggressive Allocation ETF. I know. So there's two that if you're in the United States, meet the criteria that we outlined. What's our next biggest country? The United Kingdom, UK. Yeah, the United Kingdom, the Vanguard life strategy, 80% equity fund. Now if you're in the UK, you're probably not investing in these through listed ETFs. You probably list investing through your lifetime. ISA Um, and for governments not in the UK, let's take a leaf out of the UK's book and get around the ISO structure. But yeah, you can invest in that through your eyes. So there are listed versions of the Vanguard Footsie, All World ETF, that's 100% stocks not but you know we said last weekend yeah Canada the iShares core growth ETF portfolio New Zealand Smart shares total world ETF. Wherever you are in the world there's basically if we haven't made that point clearly. 

Bryce: [00:16:32] Nice All right well that brings us to the end of the deal and we hope we've been able to answer your question. As we said, the book is available, so make sure you go and check it out. Will include a link in the show notes. But the thing is there are options. If you want to invest in one ETF for the rest of your life, but Ren we'll leave it there. Keep the questions coming. Ask an equitymates.com. If you want to ask us a question and we'll do our best to answer it, Ren we'll pick it up next week. 

Alec: [00:16:57] Sounds good.