Novice investors with a spare $1,000 in their bank accounts are advised to consider ETFs, as this asset type soars in popularity.
An ETF or an exchange-traded fund is in essence a basket of securities that tracks an underlying index. Considered a broadly safe investment option, the market size of ETFs has tripled since 2016 and has become the preferred way to access diversified investments on the ASX.
In fact, despite COVID-19, more than $102 billion is now held in ETFs listed in Australia across both the ASX and its challenger Chi-X.
This extraordinary growth is largely due to Millennial and Generation Z investors, with a recent ASX survey showing that one in five of those who began investing in the last 12 months chose ETFs.
Moreover, nearly half of investors aged 18 to 24 said they are planning to invest in ETFs in the next 12 months.
“ETFs are popular due to lower fees, ease of diversification, investment expertise of professional fund managers and liquidity, making them a popular choice for the inexperienced retail investors,” RMIT’s senior lecturer, Dr Angel Zhong, explained.
According to ETF Securities’ head of distribution, Kanish Chugh, beginners are able to safely embrace ETFs.
“An ETF is an acronym that investors should not be scared of, and put simply, they are an investment fund that is listed. Being listed an investor can buy/sell an ETF as easy as they do a share,” Mr Chugh explained.
“With over 200 ETFs available in Australia, there is a large range of choice and they provide investors an ability to gain exposure to a basket of stocks focused. This removes single stock risk, which is something that you need to consider if you are looking to invest $1,000,” Mr Chugh explained.
An example, he said, are the FAANG stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOG) (formerly known as Google) – or Tesla.
Recent figures released by BetaShares predict the ETF industry will end the year with around $125 billion funds under management, with much of the growth expected to come through the technology and ethical sectors.
“The increased interest in socially responsible investing coincides with widespread and growing concern around the environment and global warming,” said BetaShares chief executive Alex Vynokur at the time.
“We think this interest is likely to continue as the global economy emerges from the COVID-19 pandemic.”
Mr Vynokur opined that a rocky 2020 will be the catalyst for a strong 2021 for the Aussie ETF market.
“While we have recently seen some retail traders overseas caught up in speculative activity in particularly volatile stocks, investors more broadly continue to recognise the benefits of ETFs in establishing a resilient long-term portfolio,” he concluded.
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Article by Maja Garaca Djurdjevic on 21 April 2021 – nestegg.com.au