The appeal of ETFs for younger clients
Vanguard has shared three reasons why ETFs can benefit younger clients.
According to last year’s Australian Investor Study from the ASX, the overall number of investors who held an ETF rose from 15 per cent in 2020 to 20 per cent in 2023. Of those who began investing in the last two years, 14 per cent started out with an ETF.
Those investors holding an ETF tend to be younger and have a smaller portfolio size. They are also more likely to be seeking diversification opportunities, looking for a balance between risk and return, aiming to maximise their capital growth or secure a sustainable income stream.
“The continued popularity of ETFs is no surprise, given their ability to provide investors with exposure to a wide range of companies, regions, asset classes and strategies, making it easier to diversify,” it said.
ETF provider Vanguard said there are three reasons that it finds ETFs are popular with younger clients: as a low cost way to invest, a low minimum investment, and instant diversification.
Vanguard said a major benefit of younger clients holding ETFs is that they don’t require a large initial investment, with some ETFs having a minimum investment of $500. However, there may be transaction costs which advisers need to check as well as brokerage or management fees.
“If unchecked, costs can mean a big difference for an investor’s return over the long term.”
The ASX study found those aged 18–24 are the demographic most likely to hold ETFs with a median portfolio size of $45,500.
They also offer an easier way to construct a balanced portfolio which can be added to incrementally as one ETF can offer exposure to hundreds of different shares.
“Not all ETFs provide the same level of diversification. Some ETFs offer concentrated exposure in specific market sectors or narrow collections of securities that offer certain traits, like high yield. Such ETFs can benefit a portfolio if they align with its goals, but new investors will likely be best served by starting with more diverse ETFs that tap a wide pool of shares or bonds.”
AUTHOR
Laura Dew
Recommended for you
Grant Hackett has been promoted from CEO of Generation Life to head up the wider Generation Development Group.
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
