There are a lot of terms that a new investor needs to learn, we’ve already covered off CHESS Sponsorship in a previous post and why it’s something you should be aware of when choosing a share trading platform.
In this post we’ll talk about the ASX200, also known as “the market”, and why it’s essential to understand.
What’s an Index?
The ASX200 is an Australian share market index. Taking Investopedia’s definition of a market index, we end up with this somewhat simple explanation:
A market index is a hypothetical portfolio of investment holdings which represents a segment of the financial market. The calculation of the index value comes from the prices of the underlying holdings.
Therefore, the index is a tracker of a group of assets. The name of the index typically describes what it is tracking, so the ASX200 is effectively tracking the Australian Security Exchange’s (ASX) Top 200 Companies (200).
When measuring the success of the Australian share market, this is what people will be referencing. There is also the All Ordinaries that you’ll see spoken about on the news, which is the top 500 companies.
How are the top 200 chosen?
It’s not based on revenue or number of employees; it’s based on market capitalisation (also known as market cap) which is the current value of the company if they could sell all of their shares at the current share price.
You can buy a part of all 200 companies in one transaction.
It would take a while and cost a lot (in brokerage) to go and buy shares in each of the 200 companies. You can do this by buying an ETF that simply follows an index like the ASX200. Other ETFs track a technology index, a finance index, a gold index etc. This would cost you $9.50 to buy on SelfWealth, regardless of how much of the ETF you buy.
ETFs that track the ASX200
- State Street Global – SPDR S&P/ASX 200 Fund (ASX: STW)
- iShares (Blackrock) – iShares S&P/ASX 200 ETF (ASX: IOZ)
- BetaShares – BetaShares Australia 200 ETF (ASX: A200)
BetaShares’ A200 ETF is the ETF with the lowest management fee, at 0.07%. The management fee is not something you have to worry about paying, it comes out of the fund and is paid to the manager. It is a cost to your investment though, so it is essential to consider.
You can see a full list of the ASX200 companies on this handy page: https://www.asx200list.com/
SelfWealth has a community of over 60,000 portfolios and we use those portfolios to make our own indexes. The ASX200 follows the top 200 companies… why not follow the top 200 investors? Or the top 10 ETFs as ranked by popularity? The top 10 companies held by the top 20 investors? You can view all of these by making a SelfWealth account and going to the ‘members’ page, which lists indexes across the top. You need Premium to access these pages but all new members received 90 days for a free trial. Join today!