Is it too late to start investing in market index ETFs?

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November 27 2020
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With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey.

Since the start of November, Australia’s ASX 200 has gained almost 12 per cent as investors back in COVID-19 vaccine news as well as optimism around the US election.

This is despite the ASX having its biggest loss for the month on Thursday, 26 November, when the S&P/ASX 200 benchmark index closed lower by 46.9 points, or 0.7 per cent, to 6,636.4.

The US markets are on a similar trajectory, with the S&P 500 up almost 11 per cent since 28 October, while the NASDAQ 100 continues to grow to an all-time high.

Despite indexes around the world reaching higher levels, ETF Securities head of distribution Kanish Chugh explained to investors that it’s not too late to start investing in index-based ETFs.

For investors looking to track market growth and follow one of these indexes in a single trade, a product such as an exchange-traded fund or ETF allows them to purchase the entire market in one transaction.

“Not necessarily. When people are investing in market trackers, they are doing that from a perspective of diversification across a number of stocks, so they want some broad exposure,” he explained.

Mr Chugh also pointed out that individual investors need to decide what direction they believe the market is heading, with all-time highs not necessarily a sign of a market pullback.

“So, no, I don’t think it’s too late to buy into a market ETF,” he said.

“What I would say is be diversified across your portfolio to allow for protection and smoothing out of volatility across markets and asset classes.”

Mr Chugh told investors they can be diversified across a number of markets through a single trade, although he pointed out the situation varies greatly pending on individual investors circumstances.

“There are some products that are multi-asset so you could be essentially diversified with one product,” Mr Chugh said.

“If you wanted to choose individual asset classes or markets, it might take four to six trades. Although it really depends on how much time an investor wants to spend on a particular portfolio, how intricate they want to be, and the amount of money they have to invest will determine how many ETFs an investor should take.”

“This is where speaking with a financial planner can help them work out the best way to build a portfolio based on their circumstances.”

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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