The five biggest myths about ETFs
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It's Sunday, the 27th of September. I'm Michael Thompson, and today we're sharing an episode of our sister podcast, How Do They Afford That? Now, if you haven't heard this podcast before, it comes out every Wednesday morning in its own feed wherever you listen to podcasts, so you just need to search How Do They Afford That? It is full of great information wherever you're up to with money, wherever you're up to in your career, everything from budgeting and investing to managing your super, all of it. I host the show with financial planner, Canna Campbell. This week is a really good one for investors. It is all about ETFs and some of the myths and misconceptions about investing in exchange traded funds.
Enjoy. Welcome to How Do They Afford That, the podcast that peeks into the financial lives of everyday Australians. I'm Michael Thompson. I'm an author and the co-host of the business news podcast, Fear and Greed. As always, I'm with Canna Campbell, financial planner, founder of financial literacy platform, Sugar Mama TV, and my co-author on our new book, 12 Months to Financial Freedom, which is out now. Hello, Canna. Good morning. How are you? Yes, I am well. Thank you. Sorry, I sounded a bit robotic there, didn't I? But yeah, you know what? I can't complain. Let's talk ETFs, shall we? Exchange traded funds. So they have absolutely exploded.
There's something like 400 or 500 ETFs now in the market.
Yeah, and just their popularity has just gone nuts. Exploded. In probably the last decade or so, it's just been almost exponential growth. They're often described as the easiest way to start investing because they can give you exposure to a whole lot of different companies across different sectors and you can spread your risk and help you to kind of track market growth faster over a period of time. But there are plenty of myths around ETFs and about how they work. So today if you are up for the challenge. I'm
always up for the challenge. You don't even need to ask me. Great.
Well, I'll just assume then that you are good to go. We're going to separate fact from fiction with the five biggest myths about ETFs. It feels like a long time since we've done a list and I've missed them. So for those, maybe a bit of background, for those yet to dip their toe into the investing water... World? If you're dipping your toe into it, it's got to dip your toe into water.
That's true, sorry. It's
like investing water doesn't feel very appealing, does it? But anyway, what exactly is an ETF? Just give us the broad overview.
So I like to think of an ETF as a pre-packed shopping trolley or shopping basket. You can go to the supermarket and you can walk up and down the aisles and pick your individual products, your bread, your dairy, your meat, your fish, your vegetables. Light bulbs? Light bulbs. Yep, clearly you need to get some light bulbs on the way home, mental note. But with an ETF, it's like turning up to the supermarket and And at the entrance is the shopping trolley or shopping basket with everything that you need, already pre-packed, ready to go. So you can just grab it, pay it, walk out the door and you're done. You've got everything you need to get you through the week. That's like an ETF. So when you're buying an ETF, what it may be, you've got all the investments covered in one transaction.
So you have an instantly diversified portfolio for that particular asset class that that ETF invests in.
Okay. And that can be across... different sectors.
Well, gosh, there's so many of them now, but you can have one that specialises in, say, the top 200 ASX companies or you could have one that specialises in, well, it follows the index all world. You can have ones that focus, say, on particular regions such as Asia or emerging markets.
Gold miners
or
things that have got exposure to cryptocurrencies or things that have exposure to
space. AI, space, yep.
Yep, take your pick, really. It's like podcasts. You will find one out there for you.
Yes.
Right? There is so much to choose from.
What is an ETF and why has it become so popular?
Let's get myth busting. Okay. Myth number... One.
That you need lots of ETFs.
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