In Australia, ETFs have become building blocks of the share market because of their low cost and ease of access as well as their diverse investing possibilities. Increasingly, Australians are choosing exchange-traded funds (ETFs) over investing in individual company shares as they create their financial portfolios. Australian Securities Exchange (ASX) figures indicate that the amount of money handled by ETFs in Australia has increased by $8 billion in the first quarter of this year, bringing the total amount to $102 billion. Especially considering the ASX released the first ETF product precisely 20 years ago, it seemed natural that the fund achieved this feat in 2021. The financial advisers and investment firms are recommending ETFs to many Australians who are putting their money into them, either via their personal investment accounts or through their superannuation funds.
Why are ETFs becoming increasingly popular among investors?
ETFs are becoming increasingly popular due to a variety of causes.
When it comes to creating investing portfolios, ETFs have become the investment vehicle of choice for many individual investors all over the world. Why? In summary, ETFs have made investing easier and more cost-effective than ever before for a larger number of people. It’s simple to purchase into an ETF that holds shares in hundreds, if not thousands, of publicly traded businesses in a single stock market transaction. In other words, rather than investing in a few stocks, you’re buying a huge basket of them. To quote Vanguard’s late founder John Bogle, it’s better to own the entire investing haystack than searching for a needle within one.
ETFs also reduce your investment risk since they provide rapid diversification across a large number of firms in various industries and geographies.
Australian ETF provider Vanguard Investments Australia experienced its best quarter in history in March 2021, with investors contributing $1.56 billion to its various ETFs. The $28.1 billion market share for Australian ETFs held by the investment firm was 28.4% on March 31, 2021. In the first quarter of the year, the Vanguard Australian Shares Index ETF (ASX: VAS), which covers most of the top 300 Australian-listed companies, was the best-performing ETF in the market, attracting over $330 million in new money, which raised the fund’s total assets under management to $7.8 billion. Minh Tieu, believes that ETFs are increasing in popularity with retail and institutional investors. The cheap cost, simplicity of use, and diversification benefits are more highly valued by investors.
Lower expenses equate to higher returns.
ETFs have become widely used because of their low cost. Compared to buying shares of individual companies, the overall expense of investing in an ETF is cheaper, thanks to the elimination of brokerage fees. As an example, if brokerage costs of $20 each trade was applicable, the total brokerage fees on a portfolio of 100 shares would be $2000. However, the broker cost to invest in an ETF like VAS, which tracks 300 different firms, is only $20. If $100,000 is invested in VAS, the total cost of brokerage and management fees would be 0.1 percent annually, for a total of $120. Lowering your expenses increases your return on investment, and you may put more money in your pocket by reducing expenditures.
Keeping it Simple
As well as being inexpensive, ETFs are also making investing easier for investors in the global market. You don’t need to complete and submit investment application paperwork because they are traded on stock markets. After they collect the dividends from the firms they invest in, ETFs usually pay back the money to their investors, quarterly. You may be paid in cash or have the proceeds from the sale of your shares reinvested in further units in the same ETF. It is critical to be aware of the investment you are making. Each ETF featured on Vanguard’s website has a complete listing of the underlying securities in its portfolio. This data also includes historical distribution information on the money going returned to investors. ASX.com and other trading platforms are able to provide real-time ETF pricing by inputting the ETF’s market code.
Investing in non-Australian assets might be challenging, but ETFs provide you the option to do so with ease. Tieu asserts that ETFs give investors another reason to diversify their portfolio outside of the Australian market. “Global stocks having exposure to the technology sector,” he explains, “may have the chance to achieve better returns compared to those in Australia.” ETFs are a cheap and effective method to get exposure to international markets where shares are harder and more costly to buy individually.
The growing Australian ETF assets under management is reflective of more and more investors finding and appreciating the various benefits that ETFs provide.