WTF is an ETF?

There’s this time in your twenties when you really start to feel as if you’re finally making it as an adult. You brush your teeth every single night without being reminded by your Mum, you start taking spin classes at 6am before work and you even put pine nuts on your salad.

But then, your creepy old next door neighbour Bob suggests that, now you’re an adult, you really should be investing in the share market. All of your adult accomplishments come crashing down around you as you scramble to rejuvenate your youth by doing absolutely anything other than invest in the incredibly daunting share market.

Lucky for you, if you feel like you’re ready to invest, there’s these things called ETFs that make beginning to invest in the share market really bloody easy.

But WTF are ETFs?

Look, I’m not an accountant and I am definitely not a stockbroker (so take what I say with a grain of salt), but I can explain what an ETF is in very simple terms. ETF stands for Exchange Traded Fund. To put it simply, ETF’s act like plain old regular shares on the share market, meaning you can buy and sell them as you please. The fund basically manages your money for you which is great for me because I ain’t got time to be looking at shares every second of every day. The fund uses your money to invest in a diverse range of different assets, which means you aren’t putting all your eggs in one basket. ETF’s have grown in popularity recently because the management fees are ridiculously low, they allow you to diversify and they give everyone the opportunity to invest (even if you have no bloody clue what you’re doing).

“By periodically investing in an index fund, the know-nothing investors can actually outperform the investing professionals”

– Warren Buffett

ETF’s pretty much follow how the overall share market is doing. So, for example, IVV.ASX follows the top 500 companies in the US share market, whereas IOZ:ASX follows the top 200 companies in the Australian share market. This means that, just like with any other share, ETFs experience the ups and downs associated with share market volatility. More often than not, though, the overall long-term trend of an ETF is positive.

More examples of ETFs available on the Australian share market can be found here.

Take a look at the chart for IVV.ASX (the ETF following the US share market) as of 14th May at 10pm:

Since it’s beginning in November 2008, the price of this ETF has risen from $137.59 to the current price of $437.12 (that is a 217% increase in value!!). This graph shows how, just like the US share market, the ETF experiences ups and downs but the overall long-term trend is a steady increase.

“When you own an index fund, you’re also protected against all the downright dumb, mildly misguided or merely unlucky decisions that active fund managers are liable to make”

– Tony Robbins

The thing about investing in ETFs is that it takes TIME for money to grow. Your money is not going to grow overnight. In fact, it might decrease overnight if a worldwide pandemic forces the global economy to collapse. That’s why it’s super important not to invest any money that you actually need to pay for rent, or food, or for that make-up you just ordered from Sephora.

I choose to periodically invest some spare cash into an ETF, firstly, because I cannot be bothered to look at individual shares every day. Secondly, because as a twenty-something I have so much time to leave that money alone to grow before I want to use it to buy a yacht in Greece when I retire (gotta have those savings goals!!). The more you invest, and the longer you leave that money alone, the more it is going to grow.

Want to know more about WTF an ETF is? Check out the Barefoot Investor article Four ETFs To Add To Your Portfolio because it has got to be one of the few financial articles about ETFs that actually make sense.

Also, while you’re there, please please please read the article: The Power of Compound Interest by the Barefoot Investor because it is my absolute fave financial article and it is the whole reason I started investing in the first place. Plus, it is just so damn easy to understand.

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The Stingy Bitch

Based in Sydney, Australia.
Created in 2020.

Disclaimer:
This site and all of it’s contents are provided for entertainment purposes only and do not constitute personal financial advice. All products that are mentioned are general product advice only, not personal product advice. Not all options are presented and my opinions are subject to change. All content and posts have been prepared as a general summary only and is not intended to be financial advice with respect to any particular matter. This post should not be relied on with respect to any particular matter. If you have questions about any aspect of the content or this site or otherwise require personal financial advice, you ought to seek financial advice. The author disclaims liability to any person who relies on this post.

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Published by thestingybitch

A Twenty-Somethings Guide to Saving Money Whilst Still Living Your Best Life

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