Prior to this 2020 stock market crash, exchange-traded funds (or ETFs) had become a hugely popular investment vehicle. 'Why not just buy the whole market?' was the catchphrase of ETF-loving investors. Cheaper fees than managed funds, no hassle picking stocks yourself… There were definite reasons why ETFs seemed to be a good idea.
And all of these reasons were consistently validated. Most ETFs (whether Aussie-based or not) had displayed a consistent ability to record double-digit growth numbers year in, year out. Last year, for example, most ASX-focused ETFs like the Vanguard Australian Shares Index ETF (ASX: VAS) recorded one of their best years ever – returning over 23% for the year.
Of course, all of this seems a distant memory. ETFs (like most shares) have been smashed in this market crash, and many investors would have lost their faith in their 'passive' investment funds.
This is to be expected though. ETFs work by blindly following their allocated indexes. There is no provision for 'going to cash', 'buying the dip' or 'protecting the downside' as most active fund managers employ. That's why the fees are so cheap, after all.
Are ETFs still worth buying in this crash?
I personally think that if you were ok with an ETF strategy before this crash, no real changes are warranted for your portfolio. Yes, market crashes are painful, but ETFs are still faring ok – you are still getting an 'average'. Remember, an ASX ETF like VAS holds 300 companies, so some stocks will be faring better than VAS shares, and some worse.
And if you know in your heart of hearts that this is a great time to be investing (because shares are cheap right now), I think an investment in an ETF will be a solid long-term investment. We will eventually get through this crisis and as a result, ASX shares should return to their normal patterns in time.
You could also look at some ETFs that track markets outside Australia. The iShares Asia 50 ETF (ASX: IAA) could be an option for some emerging markets exposure. Similarly, the iShares S&P 500 ETF (ASX: IVV) is also a popular choice if you fancy companies like Apple, Berkshire Hathaway and Alphabet (Google).
All of these ETFs are trading at heavy discounts to what they were asking just a month ago, so invest bravely, and I think you will be rewarded! Historical data has shown that ETFs can be an easy and lucrative investment to hold over many years (as long as you don't sell out in times like this).