How To Invest In Index Funds and ETFs In Australia

By Isaac Chanakira

A friend of mine who is based in Australia read my previous article, Do This to Start Investing in Mutual Funds, and he commented that the Index funds and ETFs I mentioned are not available in Australia so, he wanted to know how he can invest in international shares from his host country. I decided to put out this Australian special article so that all the migrants in that country cannot be left behind. The Australian share market is very small compared to the rest of the world and it only represent  about 2% of the world share market. I will not explain what Index funds and ETFs are since I have already covered that in my previous article. The risks and the rewards of investing in Index Funds and ETFs are also cover in my previous article.

In Australia, almost all brokerage firms offer a platform to invest in ETFs, but you can also invest in Index funds directly through their associated fund providers such as Vanguard Investments or BlackRock. If you are already familiar with stock investment through a brokerage firm, it will be easier for you to start investing in ETFs. You just need to buy an ETF the same way you buy your shares during the trading time. The only difference is that, instead of buying just one company, you will be buying a basket of different stocks with a single brokerage fee, and you can also sell your ETF with a single click. You do not need to be able to read the trading charts or understand the fundamentals of each company before you invest in ETFs, and you instantly get access to industries and companies not available in Australia depending with the type of ETF that you would have selected. ETFs will also give you instant diversification and a chance for higher returns.

If you have not traded in stocks or ETFs before and do not have a brokerage account, the first step is to open one. You might want to open a brokerage account with a firm that offers a wide range of ETFs and less brokerage fees, so, do an exhaustive  research before making a choice. If both ETFs and Index funds investing are part of your strategy, you are better off opening a brokerage account with Vanguard Investing. I am not affiliated to Vanguard, and this is not an advertisement for them, so, you can use any other investment firm of your choice. The stages of opening an account are the same. Read my previous article if you want to refresh your knowledge on the difference between the ETFs and Index funds, the link is above.

Below are the four simple steps that you must follow to open a brokerage account:

• Do your internet research to pick the brokerage company that suits your requirement
• Deposit money into your account
• Select the ETFs or Index Funds that you want to invest in
• Invest regularly 

Once you open your account, you will be overwhelmed by the number of ETFs and Index Funds available in the market. I am going to give you some common ETFs to consider, but please do not take that as  recommendations to invest in them. I personally use Vanguard as my broker, and I will give you examples of the ETFs that I invest in. We are all at different financial positions and I do not know your risk tolerance and the time that you want to invest, therefore you must do your own research before you invest in any of the below:

ETFs

• Vanguard Australian Shares Index ETF (VAS) – This ETF seeks to track the return of the S&P/ASX 300 Index before considering fees, expenses, and tax. If you buy this ETF, you will be exposed to the top 300 Australian companies. The big companies such as the 4 banks, CSL, BHP, RIO, to mention just a few. At the time of writing, the ETF is at $97.46, and the management fees is 0.10% per year.

• Vanguard MSCI Index International Shares ETF (VGS) – This ETF seeks to track the return of the MSCI World ex-Australia (with net dividends reinvested), in Australian dollars Index, before taking into account fees, expenses and tax. If you buy this ETF, you will be exposed to the largest companies in the World, companies such as Amazon, Apple, Google, to mention just a few. At the time of writing, the ETF is at $102.18, and the management fees is 0.18% per year.

Buying these two ETFs, will  expose you to a whole range of stocks both in Australia and all over the world and if you continue investing regularly, you will eventually get rich. If you prefer further diversification than what those two ETFs offer, you can have a look at the following  Index fund:

• Vanguard Diversified Growth Index ETF (VDGR)- Vanguard Diversified Growth Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the Strategic Asset Allocation, before taking into account fees, expenses and tax. In simple terms, this provides you with a basket of different ETFs and each ETF is a basket of stocks, so, you can see that this takes the diversification to a whole new level. This Index carries about seven different ETFs and is biased towards the growth stocks. At the time of writing, the ETF is at $59.17, and the management fees is 0.27% per year.

You might need to consider investing in one all encompassing ETF like the one that I have explained above and just concentrate on adding more money on a regular basis.

So, there you have it, if you are in Australia this is all the information you need to start investing in Index funds or ETFs. There is an ETF for almost everything in the market including marijuana ETFs, so, you are most likely to find what you want to invest in. If you do not have the money to start investing right now, you can  use the money in your retirement scheme to invest in ETFs or Index Funds. Another option that is available to you is to use the money in your retirement investment scheme to buy Index Funds or ETFs or both via a self managed superannuation fund. You will need help from your financial adviser to set it up. Personally, I just invest directly through the fund.

Previous post:

Do This to Start Investing in Mutual Funds

Next post: