I think investing in exchange-traded funds (ETFs) is one of the easiest ways to invest.
ETFs have dramatically risen in popularity over the past decade. I think it’s easy to see why when you think about some of their best features:
Little hassle to buy and manage
It’s very easy to buy units of an ETF, which is why the ‘E’ part of ETF has been so important for the large uptake in recent years. Instead of filling in forms, you can just go through your normal brokerage account to buy units. Think of all the hours, forms and expenses that need to go into buying a house.
It’s also very simple to manage the investment. It’s just one investment to follow and one set of distributions that need to be reported to the ATO. Of course there’s a lot going on underneath the ETF’s hood, but we don’t need to worry about that. That’s for Vanguard, Blackrock, BetaShares and others to worry about.
Outperform the average investor
Amazingly, you would think that the average investor would do at least average, but once you add in all of the fees and expenses occurred the average person doesn’t actually do that well, particularly if they fall victim to buying high and selling low. If you can closely follow the market average then you’re going to do quite well compared to most people, even professional investors who do it for a living.
The broad and diversified ETFs have produced perfectly satisfactory results over the long-term.
Relatively less volatility than individual shares
You see a lot of volatility when you own your own portfolio of shares. You may see the ASX 200 go down 2%, but some of your shares may fall over 5% and others may go up. Seeing the losses (on paper) can really challenge your nerves.
Of course, the ETF’s underlying holdings are volatile, but it may be easier to hold your nerve when it’s the whole market and your ETF going up or down, rather than considering whether individual shares are having problems and are worth selling.
However, there is a benefit to mixing ETFs with growth shares that have good potential at good value, such as these hot stocks, which could outperform the market over the long-term.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.