ETFs are an investment megatrend that offer cheaper fees and a vast array of choice, but there is a lot to consider before buying.
Exchange-traded funds , which let investors buy bundles of shares that track an index or investment theme without picking individual stocks, are theAn ETF can be as straightforward as a group of stocks that passively tracks the NASDAQ 100 Index or Australia’s S&P/ASX 200. Or an ETF could be a collection of stocks with a common theme or criteria such as battery metals, artificial intelligence, gold, profit growth, or dividend income.
You can buy or sell shares in an ETF during an exchange’s market hours using an online brokerage platform such as Commsec or Stake, in the same way that you would trade shares in the likes of Commonwealth Bank, Telstra, or CSL.Like normal shares, an ETF will vary in price during the trading day as it’s “exchange traded” and market participants can offer to buy or sell shares at different prices.
For example, if the S&P/ASX 200 rose 10 per cent over the next 12 months, so should the value of the ETF that tracks it, and an investor’s return would be 10 per cent, minus any brokerage and management fees. “With passive ETFs you get broad exposure to an index,” says Neiron. “So, it’s a risk management mechanism for a portfolio, you buy it for diversification.”
The best performing ETF was the BetaShares Nasdaq 100, which returned an annual compound growth rate of 17 per cent over the five years to September, 31. The same research shows 95 per cent of Australia-based funds in the International Equity Fund underperformed S&P’s benchmark over 15 years.
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