Claimed by the Financial Review late last year to be one of the ‘biggest investment trends of the decade’, the exchange traded funds (ETFs) industry is booming, with growth forecast to continue year on year. If you’re looking to take control of your financial future and make informed investment decisions, ETFs might be the game-changer you’ve been searching for.
What are exchange traded funds?
An exchange traded fund, or ETF, is a type of investment that lets you buy and sell a basket of securities, such as shares, in one transaction. ETFs are traded on the Australian Securities Exchange (ASX) like ordinary shares, and they have a price that changes throughout the day based on supply and demand. For example, you can buy an ETF that has shares of many Australian companies, like Woolworths, Commonwealth Bank, Telstra, or Qantas. This way, you can own a part of many businesses with one purchase, providing exposure to a broad range of companies and sectors.
What are the benefits of ETFs?
1. Diversification
One of the key benefits of ETFs is their ability to provide instant diversification. By investing in an ETF, you’re essentially buying a basket of assets, spreading your risk across different industries, sectors, or geographical regions. ETFs can also provide exposure to asset classes other than equities, including bonds, currencies, and commodities. This diversification helps cushion your portfolio against the impact of a poor-performing individual stock.
2. Cost efficiency
ETFs are known for their low expense ratios compared to traditional managed funds. With lower management fees, investors can keep more of their returns. This cost efficiency is especially appealing for those seeking to maximise their investment gains over the long term.
3. Liquidity and transparency
ETFs trade on stock exchanges, allowing investors to buy and sell shares throughout the trading day at market prices. This liquidity provides flexibility and ease of access. Additionally, ETFs disclose their holdings daily, providing investors with transparency about the assets they own.
4. Flexibility
Whether you’re a seasoned investor or just starting, ETFs cater to a wide range of investment preferences. From equity ETFs that track stock indices to bond ETFs for fixed-income exposure, there’s an ETF to suit (almost!) every investor’s needs.
Why LBW Business Wealth Advisors recommend ETFs
At LBW we understand that each client is unique, with different financial goals and risk tolerances. Whether you are seeking income generation, or long-term capital growth, ETFs can be used as part of a tailored investment strategy to meet those objectives. We believe that it is very difficult to beat the market over the long term, which is why 80% of active fund managers continue to underperform the market index. As a result, we build our investment portfolio around a ‘core’ of index funds. Diversification through ETFs can also help to manage risk by reducing the impact of market volatility on an investment portfolio. For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio.
Take control of your financial future with a Geelong financial advisor
If you would like more information about exchange traded funds, or you’re ready to get onboard, we’re here to help. Reach out to the team today for a personalised consultation and discover how ETFs can play a key role in your investment strategy.
Invest wisely, diversify strategically, and let LBW’s experienced financial advisors be your partner in building a secure and prosperous financial future.
