Exchange-Traded Funds, otherwise known as ETFs, are a well-known investment vehicle. Investors who factor in the advantages of ETFs as part of their investment portfolio reap numerous benefits. These benefits helped propel the total ETFs in Australia assets under management to over $4 trillion.
The majority of ETFs in Australia are passive investments. It doesn’t try to outperform in the market. Your fund manager’s role in an ETF is to track the value of the index, such as the ASX 200 or the S&P 500. It also tracks specific commodities such as gold. Keep in mind that ETFs’ value can go up or down with index funds that are being followed. These are some of the major reasons why you should invest in ETFs.
- Diversification of Your Portfolio
Whenever you buy a share or unit of an ETF, you invest in a portfolio consisting of numerous stocks and other investments. The diversified portfolio can help smooth out the ups and downs of investing utilising just a single investment. You can also spread your money among ETFs that cover numerous types of assets, such as bonds and commodities. It allows you to diversify appropriately.
- Passive Management
The majority of ETFs are designed to track indexes. This method is called passive investment. This investment tends to cost less to the consumer than active investing, where a portfolio manager is hired to buy and sell securities to outperform the market actively. While there are numerous advantages to active strategies, passive management strategies can help beat active strategies based on savings.
- Transparency of Activities
The majority of ETFs publish their holdings daily. You can discover what investment your ETF holds and their relative weight in the fund, and if that fund has changed its position in a particular investment. This transparent activity can help you know if an ETF is meeting its investment goals. Since ETFs trade on an exchange, you can effortlessly find the current market price. You can typically find out what investments an ETF has and their comparative weight on a recurrent basis than mutual funds, which will only disclose their holdings at a certain period.
- Effortless Buying and Selling
You can purchase and sell ETFs in Australia from an investment firm or even via an online brokerage at any time when the stock exchange is open for the day. You can buy at the current market price or the price during the time of transaction. Similar to stocks, ETFs trade during business hours at the current market price. You usually pay a commission when you purchase or sell an ETF.
- ETFs Are Not Like Mutual Funds
Mutual funds are only priced by the end of the trading day. ETFs, in contrast, are traded throughout the day at the current market price. You can discover the current market price for ETFs at any time. At the same time, mutual funds are usually only available once per day.
Currently, the top ETFs investment in Australia is the NASDAQ 100. It exposes Australian investors to some of the world’s leading technology stocks. There is an incredible rise of technology companies over the last year, so it is of little surprise that investors such as the NASDAQ 100 will include Apple, Microsoft, Amazon, and Facebook. It makes them available to Australian customers.
- Low-Cost Ownership
You may have to put in less money to own ETFs than mutual funds depending on the type of fund you want to buy. For example, index ETFs will simply track an index, so the portfolio manager doesn’t have to manage it actively. It results in a lower management expense ratio.
In contrast, actively managed ETFs and leveraged ETFs require higher management expense ratios.
ETFs have become a well-known option for numerous investors in the past years in Australia, thanks to the rise of index funding investment. With this, you can access multiple shares in just one trade. You can purchase ETFs in Australia in several steps:
- Open an online trading account.
- Compare and select the best online share trading program.
- Sign up for a trading account
- Log into your account.
- Browse ETFs available and place a purchase order.
