ETFs 101

ETFs 101

What is an ETF?

An exchange traded fund (ETF) is an open-ended investment fund, similar to a traditional managed fund, that is traded on the ASX – just like any share. ETFs aim to closely track the performance of a given index or asset class, and provide the returns of that index or asset class – less any fees.’

Key features of an ETF

Simplicty

Invest in shares the conventional way and you could be looking at a complicated choice when it comes to deciding on which particular company, sector and geographic region to invest in.

On the other hand, ETFs are typically designed to track a whole sharemarket index, such as the Top Australian 200 Stocks, which means with one simple trade you are getting exposure to a whole market.

Cost effectiveness

ETFs track the performance of the overall index (such as, say, the US sharemarket) or asset class (such as gold). As a result of this “passive” approach, the investor benefits as the ETF manager incurs lower costs in managing the portfolio, and so does not need to pass on the more expensive fees that are usually incurred in having someone “actively” manage the portfolio.

In addition, ETF fund managers require no minimum investment amount, which means you can start investing with relatively small sums of money.

Liquidity

You can buy and sell ETFs on the Australian Securities Exchange (ASX) just as you would any listed shares during the trading day. This makes
them a convenient way to trade in comparison to some other off-market options.

Diversification

ETFs which aim to track sharemarkets give investors instant exposure to a diversified set of companies, say 200 in the case of broad Australian sharemarket ETFs.

This means that their investment will not be significantly exposed to the investment performance of a small number of companies.

ETFs for beginners

We’ve teamed up with BetaShares to give you a three part series that explores the essential things to know about Exchange Traded Funds.

  1. First we walk through all the basics of ETFs.
  2. Second we unpack the universe of ETFs and the options available to you.
  3. Third we discuss all the aspects you need to know about managing your portfolio of ETFs.

1. ETFs For Beginners – Basics 101 w/ BetaShares

2. ETFs For Beginners – What Are Your Options w/ BetaShares

3. ETFs For Beginners – Managing Your Portfolio w/ BetaShares

Facebook Discussion Group

If you’ve got any more questions about ETFs, head over to the Equity Mates Facebook Discussion Group. There are thousands of like minded investors that can answer your questions and tell you their experiences with different brokers.

Investing is a lifelong journey and it is much more fun to travel with others. So join our community and share our journey as we all work to become better investors.