Angel Zhong
A record number of exchange traded funds (ETFs) are now listed on the ASX, giving Australians more investment choice than ever before. As ETFs become an increasingly popular way to start investing, an RMIT expert explains what investors should look for to understand the risks and choose the right fund.
Professor Angel Zhong, School of Economics, Finance and Marketing: “For many young Australians ETFs have become an entry point into investing and have recently surged in popularity due to their low cost, easy access and ability to provide diversification through a single trade.
“Housing affordability is also pushing more young Australians toward ETFs. With home ownership feeling out of reach for many, investing in shares has become a more realistic way to build wealth early.
“However, it is important to understand what you actually own when purchasing an EFT.
“Before investing, you should check what is actually driving the return. Does the fund use leverage? Is it tracking a broad index or a narrow theme? What are the fees and how liquid is the market? It is important to understand the risk profile of the product being bought.
“Diversification can also become an illusion. An investor might hold several different technology ETFs and believe they are diversified simply because they own multiple funds. But if those funds hold many of the same companies, they are really making the same bet multiple times.”