ETFs and micro-investing explained: how to get the most out of your money

One particular investment option has received tremendous attention from investors, with the amount of money skyrocketing $40 billion in 12 months.

It’s a general story. You work hard to save some money, and as the money grows, so does the feeling that you should make it work harder for you.

You know you have to invest, but when it comes to pulling the trigger, it’s super scary. You don’t want to make a mistake, or worse, do something stupid that you’ll regret later. You want to be smart.

But figuring out what the “smart” move is for you is tough. There are so many options, stocks, exchange traded funds (ETFs), micro-investing apps, and managed funds — the number of choices is overwhelming.

When this overwhelm is combined with the fear of making a mistake, it is paralyzing and you can fall into the trap of indecision and passivity. The unfortunate result is that when this happens, you miss out on the opportunity to build your money momentum.

But if you do this right, you empower yourself to take smart steps with confidence and ultimately take action and get results.

The ETF market in Australia is getting a lot of attention from investors, with statistics showing that investors’ money has grown by more than $40 billion in the past 12 months alone. But are ETFs the best move for you?

I’ve found that one of the main areas potential investors get stuck in is when choosing the actual investments to use to build their investment portfolio, so here I’ve gone over the top options you need to understand so you can get the best investment. choice for you.

Shares

When you buy stock, you buy a small piece of a company. Because you own a small piece of the company, the value of your share grows with it as the value of the company grows. You are also entitled to a small part of the profit that is paid out to shareholders in the form of dividends.

A great advantage of buying stocks is that you can choose a company that you think is a good investment, and if the company does well, you will benefit from it. The downside of stocks is that when you buy stock in one company, your risk is concentrated on that company, ie your investment is not diversified.

The other downside is that the statistics show that it is difficult to consistently pick investments that outperform the average stock market return.

Managed funds

A managed fund is a pooled investment that typically buys a number of stocks, with investors sharing costs and ultimately returns. The advantage of managed funds is that you can buy one investment that gives you instant access to a large number of stocks.

The downside to managed funds is that you don’t have as much control over how the money is invested and the tax implications of buying and selling stocks are split among investors.

Exchange traded funds

Exchange Traded Funds (or ETFs) have become increasingly popular in recent years, and the number of ETF options available to investors is growing just as fast. ETFs are like a hybrid of stocks and managed funds, where investors can access a bundle of stocks and have more control over their tax returns.

The downside to ETFs is that because they are bought and sold on a stock brokerage platform like CommSec, they typically come with a fixed brokerage fee for each time you invest.

Micro-investing

Micro-investment apps and platforms like Raiz and Pearler have burst into the investment world over the past decade and have become very popular for a reason. They have the advantage of combining a smooth user experience with the ability to invest small amounts of money in stocks, managed funds or ETFs.

The downside of micro investing is that you have a little less control over your investments, and when you have larger amounts to invest, the costs can be higher than some of the alternatives.

How to choose

The reality is that when you’re in the early stages of your investing journey and don’t have a six-figure plus portfolio, the difference between stocks, managed funds, ETFs, and micro-investing apps will be quite small.

To me, this suggests that when making your investment choice, you should focus on a solution that’s easy to set up, use, and navigate. This enables you to take action faster so that you can achieve results.

I would point out that if you plan to invest a significant amount of money, either as an initial contribution or regularly moving forward, making the best choice at this point will pay big dividends over time – if this is you , consider doing some research or getting good professional advice.

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The amount of choices out there can be overwhelming and can be a huge barrier to taking action and getting results. But only if you allow it.

Take the time to understand your options and how to make the right choice for you and you will go a long way in building the confidence to achieve your investment goals.

Ben Nash is a financial expert commentator, podcaster, financial advisor, and founder of Pivot Wealth, and author of the Amazon bestselling book “Get Unstuck: Your guide to create a life not limited by money.”

Ben has just launched a series of free online money education events to help you get on the first financial foot. You can view all the details and reserve your place here.

Disclaimer: The information in this article is of a general nature and does not take into account your personal goals, financial situation or needs. Therefore, you should consider whether the information is appropriate for your circumstances before acting on it, and seek professional advice from a financial professional if necessary.

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