Missed the property boat?
Property isn’t the be-all and end-all to wealth creation. It’s possible to grow your wealth without real estate.
If a house is out of limits for you, the good news is there are now more options than ever. Here’s a road-map to three popular options on the market.
Property prices on the rise – again!
Across major capital cities in Australia, it now takes at least half a million dollars to buy an averaged priced property.
In Sydney, the average property price is $1.2 million and in Melbourne it’s almost a million.1 Even a 10% home deposit requires at least $50,.000 to $100,000 to get a foot on the property ladder.
What’s more, given still very low interest rates and the strong rebound in the economy since last year’s COVID crisis, BetaShares Chief Economist, David Bassanese, estimate prices nationally may rise another 10 to 20% over the coming year – further putting beyond reach the dreams of many younger Australians to own their own home or investment property.
Those that fear they’ve missed the property boat so far have two choices:
- Start saving furiously to build their deposit requirement
- Look for alternate ways to build wealth over time.
Either way, having a savings plan outside of the property sector makes sense for many people.
For these investors some luck is on their side: it has never been easier or more cost effective for Australian investors to start investing and to create their own highly diversified investment portfolio on the Australian share market, thanks to innovations in the funds management industry.
Even relatively small investments could build up quickly over time – especially if income earned is automatically re-invested and regular extra investments are made as part of a systematic savings plan.
Here are 3 steps to easily and cost effectively build a highly diversified exposure to investments outside of the housing market and a step-by-guide to get started.
The ASX has traditionally been a place to buy and sell individual company shares (such as Commonwealth Bank, BHP Billiton, or Woolworths, which almost all of us are likely to have exposure to through our superannuation funds already).
These days, investors t don’t need to worry about which stocks to buy if they just want broad exposure to the share market. That’s because investors can buy exchange traded funds (ETFs) instead.
ETFs are essentially professionally run managed investment funds that can be bought and sold on the ASX, just like a company share. Put a simple way, ETFs pool money from their investors and use the proceeds to buy a wide spread of individual company shares – limiting investor exposure to any one company and offering diversification across the relevant market or sector. As with company shares, each ETF has a trading code, or ‘ticker’ – to view any ETF’s price, or buy/sell a certain quantity, you just need to type in its code in the relevant space on your share trading account.
ETFs are passively managed “index” funds, which aim to match the market or a relevant benchmark index. The key advantage to this approach is the ETF provider is not actively buying and selling shares looking for outperformance, so does not need to use a team of highly paid investment gurus to pick stocks, with the cost saving passed onto investors in the form of relatively low investment management fees. Another advantage of this approach is transparency. As ETFs only buy securities based on the benchmark tracked, anyone can see at any time what stocks an ETF holds by going to the ETF provider’s website.
ETFs are also regulated investments and must meet stringent regulatory requirements with investor protection in mind. This includes, for example, requirements that the ETF provider be appropriately licensed and that the ETF’s assets be held separately on trust, for the benefit of investors.
ETFs also require no minimum investment (subject to any broker requirements) – you can buy as little as one ETF unit (say for around $50) on the ASX. That said, due to share trading or “brokerage” costs – which, as noted above, can be around $20 a trade – you’ll probably want to buy your ETF investments in somewhat larger chunks.
There are now over 200 exchange traded products on the ASX – covering Australian and international equity markets, bonds, currencies and even commodities like gold and oil. That means your investment portfolio can be as simple or multi-faceted as you want to make it – you can buy only one or two ETFs covering a specific investment market (like Australian equities), or a range of ETFs covering many markets.
What’s more, investors also face a risk-return trade-off: asset classes such as equities and listed property generally offer higher returns than cash or bonds over time, but the returns of the former tend to be much more volatile on a year-to-year basis. Ideally, a well-diversified yet still relatively simple portfolio might contain a mix of ETFs providing broad index-like exposure to all of these asset classes, with the weight given to growth assets like equities dependent on your risk tolerance.
Again, in general, investors who are relatively early in their investment careers may be willing to accept more volatile equity exposures – as long-run returns tend to be higher, and they have time to recover from any market dips that may take place over the short to medium-term. All investors can have a different tolerance for investment volatility – irrespective of age. If in doubt, consult a financial planner to help decide the asset allocation that might suit you best.
Subject to your own assessed level of acceptable risk and considering your financial objectives, outlined below are three ETFs from the BetaShares suite of funds that illustrate the types of exposures you can obtain.2
For starters, history suggests that equities tend to produce the strongest returns over time, albeit with more volatility, compared to other types of investment such as cash or bonds. For investors seeking long-term capital growth, therefore, it’s hard to go past a high allocation to shares.
Consider these three BetaShares funds to kickstart your investment journey.
The easiest way to get broad exposure to shares is through the BetaShares Diversified All Growth ETF (ASX Code: DHHF).
This fund invests 100% into equities and gives you exposure not just to the Australian share market but also to the overall global market – all in the one fund.
DHHF invests around one third of its funds into the broad Australian share market, with the remaining two thirds across global markets – such as the United States, Europe, Japan and China.
All up, the fund invests in around 8,000 listed shares in over 60 global stock exchanges around the world.
Country Allocation, 31 July 2021
For those interested in exposure to companies with particularly attractive long-run growth potential, another option is the BetaShares Nasdaq-100 ETF (ASX Code: NDQ).
This fund provides exposure to the top 100 companies listed on the US-based NASDAQ exchange, which historically has been home to some of the world’s most innovative companies. Currently, the top companies on the NASDAQ exchange include such household names like Apple, Microsoft, Facebook, Amazon and Google.
The Nasdaq-100 index (that NDQ aims to track) has been a strong performer in global markets in recent years thanks to the strong underlying earnings growth of these increasingly dominant companies.
Nasdaq-100 Index- Relative performance
Total Return Index Indices = 100 at 31 December 2008; December 2008 to July 2021
Bloomberg. Past performance of the index is not indicative of future performance of the index or ETF. Graph shows performance of the index that NDQ aims to track (being the Nasdaq-100 Index) relative to the S&P/ASX 200 Index and the MSCI All-Country World Equity Index. It does not show the performance of NDQ and does not take into account NDQ’s fees and costs. NDQ’s inception date is 26 May 2015. You cannot invest directly in an index. Nasdaq-100 is a registered trademark of Nasdaq, Inc (Nasdaq). NDQ is not issued, endorsed, sold or promoted by Nasdaq and Nasdaq makes no warranties and bears no liability with respect to NDQ.
Another investment option that taps into an area with increasingly apparent mega-trend potential is the BetaShares Climate Change Innovation ETF (ASX Code: ERTH).
There’s no denying the world is racing to “decarbonise” economic activity, with a view to reducing net greenhouse gas emissions from around 30 billion tonnes of CO2 last year, to zero by 2050. In the area of clean energy alone, the International Energy Agency (IEA) recently estimated investment will need to more than triple by 2030 to over $US4 trillion3.
The ERTH ETF aims to provide exposure to this rapidly emerging trend, with exposure to a portfolio of up to 100 leading global companies that derive at least 50% of their revenues from activities that help to address climate change through the reduction or avoidance of CO2 emissions.
Importantly, as seen in the table below, these potential activities cover not just clean energy provision (an area which in itself is subject to significant change and uncertainty), but also leading companies tackling green transport, waste management, sustainable product development, and improved energy efficiency and storage.