Exchange Traded Funds (ETFs) are a rapidly growing investment category, says State Street’s Shaun Parkin, and may offer a low cost way of diversifying your portfolio.
The use of Exchange Traded Funds (ETFs) by investors is continuing to gain momentum. In fact, research by Stockspot reveals that Exchange Traded Funds (ETFs) saw a 42% growth in funds under management to $21 billion in 2015 alone.
So what exactly are ETFs? Typically structured like managed funds, but listed and traded on an exchange like stocks, ETFs are flexible trading and investment vehicles that could help build your super balance over time.
The benefits of ETFs
Exchange Traded Funds (ETFs) often appeal to investors due to their many attributes:
Asset diversification: There are ETFs available in nearly every possible asset class, including Australian shares, international shares, fixed income, real estate and commodities.
Low cost: One of the most common uses of ETFs by investors is to help them gain low cost access to a new asset class in a single trade or to further diversify an existing asset allocation to minimise concentration risk.
Ease of trading: ETFs trade all day long at their market price, just like stocks. Investors can buy and sell ETFs continuously throughout the day in real-time.
Transparency: The securities held within most ETFs are posted daily allowing investors to make informed portfolio decisions real time with prices capturing the precise movement of market at time of purchase/sale.
Weighing up your risk profile
Investing in ETFs represents fractional ownership in real companies and carries with it all the risks and potential rewards of owning any business.
In terms of the risk scale, ETFs generally lie on the riskier end of the spectrum when compared to other options such as cash, however they typically deliver stronger returns than cash.
Your attitude to risk, as well as your own unique circumstances, will play a part in deciding whether ETFs are the most appropriate investment option for you. For specialist advice tailored to your own unique circumstances, consider speaking to an independent Financial Adviser.
1 Stockspot, http://blog.stockspot.com.au/global-share-etf-growth-exploded-in-2015/ as of 21 January 2016.
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