Investing In Managed Funds and ETFs – An Introduction

You often hear sayings about the era we live in which includes remarks such as ‘we live in great times ‘or ‘interesting times’.

Not sure what to make of these sayings but one thing I can say is that we have reached a remarkable time when it comes to choosing investments such as managed funds and Exchange Traded Funds (ETFs).

When I first came into the industry, the available options with managed funds (ETFs weren’t a thought at this stage), was very limited. You had Australia shares funds, global shares funds, property funds and a conservative fund which would’ve consisted of investments such as government bonds.

Things slowly evolved in the 1990s with financial organizations starting to offer specific funds such as industrial shares only or small capitalisation companies or a fund that focused on dividend paying shares.

With technology also came a proliferation of fund managers who started offering investments such as an actively managed fund, rather than an index fund. Technology also helped with innovation such as the advent of ETFs, which have exploded in popularity. ETFs are another form of managed fund but without investing directly with the fund manager. With ETFs, they are listed on the stock exchange which means you can buy them directly via your broker account rather than send your money to the fund manager as would happen in the past.

The ease with which ETFs can be made available has led to the next greatest development in this industry. The opportunity to be able to invest in any type of investment that you wish to invest in. As I mentioned earlier, managed funds from 35 years ago were fairly limited in their offerings. Today, it seems almost everything in the investment universe remains accessible via products such as ETFs.

You may wish to invest in a particular country’s stock exchange, or a particular sector such as mining, banking, information technology. Even with these sectors you can look to invest in sub-sectors such as artificial intelligence, robotics and now even crypto currencies, as well traditional commodities such as gold, silver and oil. In addition to this, some ETFs offer investment strategies using derivatives such as options and futures contracts to enhance the performance of their investments.

Accessing these investment options is simpler now that it was over 35 years ago. But with so many different investment options in the market, how do you start investing with such products?

Well, you need to identify how you want to invest and what to invest in to begin with. Much of this will be dictated by your stage of life and risk appetite. Make sure you understand all this about yourself first. Everything else flows on from that.

Investment questions include, are you starting out and looking to build a portfolio over the next 30 or 40 years? Did you want to have a mix of Australian and global shares or have a tilt towards a certain country or region? Do you wish to have exposure to a certain sector, or do you have certain industry knowledge where you see opportunities for that industry? Do you wish to access new technology companies which aren’t always easy to invest in from countries such as Australia? Are you familiar with a certain investment strategy that involves trading derivates and contracts that is usually only available to the professionals?

All these questions are good questions, and you will be suited to certain investments. Whatever your stage of life and interests, there is going to be a managed fund or ETF that will suit you. Once you become interested in what you wish to invest in, you can start narrowing your search to those providers that offer your investment need. Whatever investment you will have in mind, there will usually be an ETF for this investment.

Investing in your chosen managed fund or ETF is easy enough these days. What’s more important is having some understanding as how these funds work and being familiar with some of the features of the fund or ETF, particularly fees. It’s important to understand what’s under the hood.

In coming issues of this blog, we’ll explore how to find these features or bits of information. They can make a difference.

However, to finish of this first edition, before you get investing, you need to understand the rate of return. What is the expected return from the investment you are looking at and how does that compare to other investments?

We define the rate of return for any period as the income generate by the investment such as dividends or interest as well as the increase in the price of an asset over a given period of time.

Galanis Financial Group can provide tailored solutions to suit your individual circumstances. For further financial advice on ETFs and Managed Funds, contact Galanis Financial Group.