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ETF or Exchange Traded Funds are one of the most talked about financial instruments available for investors today. Many investors use ETF’s to hedge portfolios, while others use them to invest should they be averse to risk, or just starting out in their financial investing journey.
ETFs (Exchange Traded Funds) provide investors to the fund with a range of investment opportunities in a range of asset classes such as shares, commodities, bonds, currencies and more. Rather than looking at one asset, the fund seeks to track a market index rather than taking bets on individual companies.[1]
By becoming part of a fund, investors are able to gain economies of scale and diversification opportunities that, as an individual, most investors simply would not have the capital, time or skills to manage alone.
Being accessible from many financial institutions and most online trading platforms, ETF’s can typically be traded any time the markets are open in which the ETF is tracking.
In many instances, there is little to no minimum buy-in for the ETF, and for many investors this is a great way to diversify their portfolio in the long term, manage risk or start out in investing.
The key benefits are the low transaction & management costs, due to the fact the investor is tracking, not actively investing or moving money around. The second is the transparency, as ETF’s are required to outline their daily performance and account for their investment mix on the ASX.
As an investor, there is always a propensity to take risks, however, those risks should always be offset by either a reward or a diversification of your portfolio. Remembering that as an investor, you should never invest, or trade more than you are prepared to lose – as is the nature of the financial markets.
Although your short to medium term may involve a range of short-term investing plays, perhaps some CFD’s or riskier moves, should your portfolio have a range or short positions against the risky moves, as well as a proportion of the investment set up in an ETF, your portfolio will be much better prepared to manage potential market volatility.
Young investors who are not altogether familiar with the intricacies of the financial markets would be well-served by trading an ETF that tracks the broader market. Some of the other characteristics of ETFs that make them ideal investment vehicles for young investors include liquidity, low fees, investment management choice, and innovation[3].
As with any financial product, there are risks that can impact the ETF, such as market declines, crashes or even a GFC, and investors need to ensure that the ETF is meeting your specific investment needs and strategy.
Getting solid advice from a licenced and qualified expert on investment strategy should always be your first step. Get in touch with the team from Walker Capital today to find out more about ETF investment.
[1] https://www.stockspot.com.au/what-are-etfs/what-are-etfs/
[2] https://www.asx.com.au/asx/share-price-research/company/STW
[3] https://www.investopedia.com/articles/younginvestors/09/etfs-ideal.asp
