What are ETFs?
An ETF (or the common misspelling of EFT, electronic funds transfer…) is an Exchange Traded Fund. This is a way to access a fund (as compared to an individual stock) on the exchange. Historically, you had to go directly to the fund, set yourself blah blah. Now, you can buy and sell it quickly through your SelfWealth trading account.
An ETF can cover anything: the top 300 companies of the ASX, the biggest biotech companies, certain countries or geographical regions. The most spoken about ETFs though, are the ones that the top companies based on market capitalisation.
Marketing capitalisation = the value of the company
Index = a set of rules on what to buy
What an ETF does is spread your money across all the companies in its portfolio. Therefore, by default, you will be diversifying your money and reducing your risk. If you put all of your money in one company, and it fails, you will lose a lot of money. If you spread it across 200 companies, that risk is reduced.
Most Popular ETFs
Vanguard Diversified High Growth Index ETF
Ticker code VDHG
Why buy? Covers Australian and Global Shares
Rank #2 in all holdings of SelfWealth investors
This is a really popular ETF for the lazy. Sorry, but it’s true. This is an ETF made up of ETFs! It’s made up of 35% Australian shares (via an ETF) and the rest international shares (via a few ETFs). This is a real set-and-forget ETF!
BetaShares Australia 200 ETF
Ticker code A200
Why buy? Covers the top 200 companies in Australia
Rank #9 in all holdings of SelfWealth investors
This fund will spread your money across the top 200 companies by market capitalisation. I.e. more of your money will go to buying the top company — Commonwealth Bank (ASX:CBA) at the time of writing — than buying, say, WebJet (ASX:WEB) as it’s closer to the bottom of the top 200.
Note: the most popular Australian stock exchange ETF is actually Vanguard Australian Shares Index ETF (ASX:VAS) but A200 has slightly lower fees and I’m a big fan of Australian-owned BetaShares who manage A200.
iShares S&P 500 ETF
Ticker code IVV
Why buy? Covers the top 500 companies list in the US
Rank #10 in all holdings of SelfWealth investors
The US stock exchanges cover some of the biggest companies in the world, including companies you would know such as Apple, Alphabet (Google), Tesla, Disney… the list goes on. The US market represents a large part of the global economy and it also lists a lot of companies not from the US AND companies that have a global reach. So while you’re buying companies listed on the US exchanges, don’t be mislead by thinking you’re placing a bet simply on the US economy.
There are many, many more ETFs to be found. Search the SelfWealth blog for more information or check out popular online resources for more information.
When’s the Best Time to Buy an ETF?
My answer to this question is always, yesterday.
A common investing phrase says, “Time in the market is better than timing the market.” Therefore, just get in and stop worrying about small things that might save you a few cents here or there, as you will be investing for a long period!
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How to Buy or Sell on SelfWealth
You need to fund your account in order to buy something. Therefore, log into your account and head to the trading account settings page to get the BSB and account number you need to transfer to, from your banking app. The funds should arrive in a day or two.
Once your funds arrive:
- Wait for the ASX market to open (10am – 4pm each day)
- Search for the stock or ETF you want to buy
- The ‘order type’ you’re probably going to want to use is “market then limit” (look below for why)
- Type in the amount of money you want to invest
- Submit the order! It will most likely fill instantly
- You are now an investor! Congratulations!
Market then limit = buy at the current market price. Trying to pick a certain price and worrying about small fluctuations for long-term investors isn’t worth the hassle. Just get in there!
SelfWealth Ltd ACN 52 154 324 428 (“SelfWealth”) (Australian Financial Services Licence Number 421789). The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to on this website are of a general nature only and should not be relied upon in place of appropriate professional advice.