Smart Investing
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The Chinese calendar says this is the year of the dragon. Less auspicious perhaps but for Australian investors this is shaping up as the year of fixed income.
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By taking a few simple steps, super fund members can both boost their retirement savings and legally minimise tax on their super – for themselves and their beneficiaries.
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Self-managed super funds seem set to remain by far the preferred superannuation choice among higher-balance members – particularly those in retirement.
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This is a question that many investors are, not surprisingly, asking themselves. But what might surprise some investors is that the answer is not as elusive as it may at first seem.
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Changes to the ASX operating rules to allow fixed income Exchange Traded Funds (ETFs) to trade on the Australian market will open a new means for investors to efficiently, conveniently and inexpensively diversify their investment portfolios.
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- Podcasts
News & Commentary
The ease-of-understanding test 12 Jul 10
One of the key reasons for the remarkable popularity of Exchange Traded Funds (ETFs) is that their attributes and how they work can easily be explained to investors.
The passing of an ease-of-understanding test is fundamental for astute investors when considering an investment – no matter its type. As soon as an investor struggles to understand how an investment operates, it should typically serve as a warning for them to stay away.
Indeed, the Australian Securities and Investments Commission (ASIC) uses an expression in the section on its website about complex investments: “If you don’t get it, don’t buy it”.
David Bassanese, managing director of PennyWise Investment – an adviser specialising in ETFs – picks up this ease-of-understanding theme in a series of talks headed, Effective Strategies in Using ETFs to Make Money.
Bassanese points out, for instance, such clear features of ETFs as: Ease of buying and selling (trading on market like a listed share), wide local and international diversification, low cost, flexibility, liquidity and transparency.
And he emphasises that unlike listed investment companies, ETFs trade at the net asset value of their underlying assets.
In short, index-tracking ETFs could easily be described as listed index funds.
Further, Bassanese draws attention to several of the possible drawbacks of ETFs for some investors – again easily understood. Brokerage is paid on each trade, which, he says, may make them unsuitable for investors making small, regular investments. And their ease of trading may encourage some investors to trade too often.
* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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