There are a number of ways to approach investing or trading shares. We prefer to make our own investment decisions in choosing what goes into our portfolio from companies, asset classes and allocation in our portfolio. However we do understand for majority of population, it is either unfeasible due to time constraints or mist match in skill set.
Long term investment savings
Cost can make a large difference for investors over the long run. Exchange traded funds can be the simplest and most cost effective way to capture long term equity market return without the cost of active management, making poor investment choices and taking unknown risks.
The easiest and most effective way for 99% of the population to invest for the long run is to put money in a index fund or an exchange traded fund (ETF) that tracks the brodare market like the Allords.
ETF providers have created a number of cheap index funds that simply tracks the market for the investor. Investing in ETF means taking the notion to heart that it is simply it is more important to be in the market than trying to time the tops and bottoms.
Index Fund providers
From list of providers of ETFs or index funds in Australia. Vanguard index funds is the most commonly known cheap alternative to active managed funds. Blackrock ETF and State Street ETF have a wider range of asset class and specific equity sectors. ETF providers have created a stable of bond, equity and international equity funds that track their respective indices rather than hiring a team of portfolio managers and analysts in trying to find winners and losers in this market.
Investors loves these products. For example, one of the largest and most liquid Australian market ETF is STW ASX which simply invest across companies on the ASX 200 list. There is also ASX ILC which tracks the asx20 which is only the largest 20 companies on the stock exchange.
It can also be difficult for investors to analyze companies listed in overseas markets due to tyranny of distance, unfamiliar accounting standards and lack of research support. Index funds can be effective for those that want to add international equity exposure in their portfolio.
Funds like ASX IVV tracks the S&P 500 index which is the 500 largest companies listed on the US stock exchange. For investors that are worried about currency risk, there are replicate versions of major market indices where the underlying fund value is hedged in Australian dollars. For example for Japanese ETFs, the value of 1000 yen to AUD is fixed so the value of investment is not affect from currency changes.
ETF Portfolio Constructions
ETFs can also be useful for investors that are looking for specific sector exposure without delving into picking specific stocks. For those that have specific sector expertise such as healthcare, mining or real estate and think a particular sector will outperform going forward. Sector funds can provide direct exposure to a portfolio of equities in that sector.
Additionally because the range of asset classes available, it can be an easy means of adding other asset classes such as bonds and portfolio of REITs.