A cheaper way to diversify your portfolio

One investment tool, Exchange Traded Funds, is becoming popular in Australia, particularly with younger investors and those wanting to diversify.

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For those thinking about dipping their toes into the investing pool, or for more experienced investors looking to diversify their investments, there is a wealth of options to consider.

One particular investment tool, Exchange Traded Funds (ETFs), is becoming increasingly popular in Australia, particularly with young investors.

Exchange traded funds are simple to use, transparent, low-cost investment products that can be bought and sold during the ASX trading day – and as a result are one of the fastest growing investment vehicles in the Australian market.

With ETFs, instead of picking one company, in one simple trade you can access a basket of companies.

So it can be great way to get started in the share market.

Each year, the BetaShares/Investment Trends ETF Report sets out ETF insights from a survey of individual investors, SMSFs and financial planners.

This year’s findings indicate a ‘coming of age’ in the Australian ETF industry. I’ve highlighted some findings below.

The report revealed the number of Australian investors using ETFs has grown to a record number of 265,000, up from 202,000 in the previous year.

ETFs are no longer perceived as a niche investment vehicle.

Investors now identify that ETFs provide liquidity and low-cost, transparent access to a diverse range of asset classes and exposures.

Millennial investors to drive future ETF growth

While on average ETF investors are 51 years old, the average age of investors who invested in ETFs for the first time last year is 39 years.

This is significantly lower than those who first started using ETFs five years ago – at an average age of 58 – and shows that the average age of an ETF investor is well and truly on the way down.

This is a striking statistic and shows how mainstream the ETF industry is becoming in Australia, as well as how important the younger or millennial investor will be to the industry’s future.

Among the online share investor population, the appetite for ETFs is greater among the younger cohort.

About 37 per cent of millennials say they use or intend to use ETFs in the coming year, versus 31 per cent for Gen X investors and 28 per cent for baby boomers.

The report found repeat investment into ETFs is very high, with 70 per cent of investors indicating they would consider re-investing in ETFs in the next 12-months.

Diversification remains the primary driving factor, with 72 per cent of investors citing this as a reason for using ETFs.

Investors will continue to tap into ETFs for a broader range of investment needs, with the report projecting a record 315,000 Australians will be invested in ETFs by September 2017.

In line with the current growth trajectory, we project the industry will grow from the current $25 billion in funds under management in Australia to $30-33 billion in funds under management, with approximately 250 exchange-traded products, by the end of 2017.

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