A few years ago, the most popular saying in Australian stock-picking was, "you won't get fired buying the banks".
Specifically, it was referring to advisor's recommending their clients buy shares of banks like National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
After all, it's an easy sell because:
- Clients know the companies
- Clients loveeee dividends; and
- Heck, the government would never let the big banks fail, right?
Fortunately, that advice was great. Bank share prices powered higher, dividends swelled and profits expanded.
But advisors have moved onto something new: ETFs.
What the… ETF?
ETF stands for Exchange Traded Fund. It's what you'd get nine months after a fund manager married a stock.
Basically, it's the wrapper around a stock portfolio which is managed by someone else. The ETF simply allows you to buy into the portfolio on the ASX.
Many — NOT ALL — ETFs are index funds. That means, they follow something like the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) or ALL ORDINARIES (INDEX: ^AXAO) (ASX: XAO).
The All Ords and ASX 200 cover virtually all of the shares in the market. They are designed to be representative of all shares listed on the stock market.
"You won't get fired buying an ETF"
Now, the default recommendation (read 'easy sell') of advisors is to get clients into ETFs. Usually just plain old Vanguard, iShares and SPDR ETFs will do.
After all, they cost bugger all and heck if the market crashes, that's life.
Foolish Takeaway
ETFs are a great development and frankly I reckon the transition from just buying bank shares to just buying ETFs is a promising move over the long-term. But don't make the mistake to think that's all you should have in a share portfolio. Diversify across different ETFs and strategies, remember not all ETFs need to be 'passive' index trackers.
You should also consider buying some individual shares you really like. It's a quick way to learn about investing and growing wealth over time.
