For those new to investing, low-cost exchange-traded funds (ETF) offer the perfect vehicle to kick-start your investment journey.
ETFs are well known for their diversification benefits. They allow inventors to gain broad exposure to a basket of assets in a single trade. This takes out the stress of having to learn about several individual companies when starting out.
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Declining management fees
The trend of declining management expenses of ETFs has made ETF investing increasingly appealing. According to the ASX's most recent Australian Investor Study, fees and costs associated with making an investment ranked among the top 3 considerations for selecting an investment.
This preference has not gone unnoticed by Australian ETF providers, who have engaged in a widely publicised price war over the past few years. ASX investors have benefited, with management fees falling below 0.1% for several popular ASX ETFs. This can be contrasted with the cost of investing in managed funds, which has stayed relatively constant at around 1%.
Here's three low-cost ETFs you might want to consider if you're new to investing.
3 ETFs with ridiculously low fees
In early 2023, Blackrock, the world's largest fund manager, announced it had slashed fees on its iShares S&P/ASX 200 ETF (ASX: IOZ) fund (which tracks the ASX 200) to just 0.05%. This means investors are now paying just $0.50 for every $1,000 invested. With iShares S&P/ASX 200 ETF up more than 60% over the past 5 years, it's unlikely investors would have any regrets over buying this ETF.
Betashares went one step further by cutting fees on its Betashares Australia 200 ETF (ASX: A200) fund (which also tracks the ASX 200) from an already-low 0.07% to just 0.04%. This makes it the lowest Australian shares index ETF available on the ASX.
Vanguard then joined the fee-cutting party by cutting the management fee on its flagship Vanguard Australian Shares Index ETF (ASX: VAS) from 0.10% to just 0.07%. Unlike the previously mentioned BlackRock and BetaShares funds, this ETF tracks the ASX 300 index, giving investors greater exposure to the ASX's smaller companies. With Vanguard Australian Shares Index ETF also up more than 60% over 5 years, this has been another great choice for ASX investors to build wealth without the complexity of stock picking.
Can they go lower?
It's possible. If the US market is anything to go by (with some US-listed ETFs charging just 0.002% management fees), further reductions for ASX-listed ETFs may be on the horizon. For now, ASX beginners can check out one of the already super low-cost ASX ETFs to enter the market.
