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Speaker 1: Today's podcast was made possible by our friends over at Comsek,

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Speaker 1: Australia's leading online broker.

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Speaker 2: Already and this is the Daily This is the Daily OS. Oh,

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Speaker 2: now it makes sense.

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Speaker 3: Good morning and welcome to the Daily OS. I'm Sam Kazlowski.

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Speaker 2: I'm Emma Gillespie.

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Speaker 3: If you've been putting off investing in the share market,

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Speaker 3: this podcast is for you. Today we're going to talk

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Speaker 3: about something that has been revolutionizing how young Australians invest

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Speaker 3: their money. ETFs, or exchange traded funds, have exploded in

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Speaker 3: popularity recently, but most of us still only have a

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Speaker 3: vague idea of what they actually are or whether they're

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Speaker 3: right for us. On today's podcast, we're going to unpack ETFs,

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Speaker 3: explore why they've become more popular, some of the risks involved,

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Speaker 3: and whether they're actually as simple as they sound. Now

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Speaker 3: quick just before we start. This podcast is produced with

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Speaker 3: insights from Comsec. However, everything we're talking about today was

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Speaker 3: researched and written by us and the content remains entirely

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Speaker 3: independent and just to make sure we're completely above board,

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Speaker 3: the information and views expressing this podcast do not take

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Speaker 3: into account your objectives, financial situation, or needs, consider the

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Speaker 3: appropriateness of the information before acting, and if necessary, seek

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Speaker 3: appropriate professional advice. Opinions expressed are those of the individual's

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Speaker 3: reference and not com sex investing carries risks.

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Speaker 2: Sam, I feel like this podcast is for me. I

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Speaker 2: feel like you were talking to me in your intro

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Speaker 2: as someone who has kind of put off understanding this

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Speaker 2: whole world, but certainly wanting to know more. Yeah, I

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Speaker 2: do feel like everyone is suddenly talking about ETFs. I'm

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Speaker 2: not entirely sure what they are. That's okay, you said

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Speaker 2: what they stand for. It didn't clarify anything for me.

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Speaker 2: So can you take it back to the most basic

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Speaker 2: of basics and explain to me what an ETF actually is.

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Speaker 3: I want you to think of the most basic food

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Speaker 3: three two one yep, potato, nearly salad. I want you

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Speaker 3: to think of sea.

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Speaker 2: Okay, yep.

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Speaker 3: So if you want a salad, it was pretty basic.

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Speaker 3: If you want a salad, you can either buy all

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Speaker 3: the ingredients separately or just grab one that's pre made

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Speaker 3: from the shops.

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Speaker 2: Right.

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Speaker 3: So investing works kind of the same way. So a

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Speaker 3: stock is a tiny piece of ownership in a company,

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Speaker 3: and when you buy a share in a company, you

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Speaker 3: own a microscopic slice of it. So you can buy

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Speaker 3: individual stocks in companies one at a time, or you

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Speaker 3: can buy a bunch together in what's called an exchange

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Speaker 3: traded fund. And so here's how an ETF actually works.

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Speaker 3: So imagine you and like ten thousand other people all

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Speaker 3: put money into a giant pool of money. A fund

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Speaker 3: manager uses that pulled money to buy shares in a

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Speaker 3: whole other companies. Then they divide the ownership of that

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Speaker 3: entire collection into little shares which you can trade on

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Speaker 3: the share market, just like a normal stock.

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Speaker 2: Okay, So a normal stock might be an ingredient for

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Speaker 2: the salad, but an ETF is the whole salad mix

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Speaker 2: with a little curated special section.

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Speaker 3: Love that's given to you. Yes, And then when you

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Speaker 3: buy a single share in an ETF, you're buying a

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Speaker 3: little bit of that secret salad.

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Speaker 2: Okay, So it's more of a party mix, kind of

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Speaker 2: a vibe.

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Speaker 4: Yeah, got it.

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Speaker 3: Okay, So I can tell that you like party mix

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Speaker 3: more than salads, but we're going to keep going.

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Speaker 2: Who doesn't.

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Speaker 3: So when you get that little slice of a salad

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Speaker 3: slash party mix, that gives you exposure to dozens, hundreds,

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Speaker 3: or even thousands of companies at once.

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Speaker 2: Okay.

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Speaker 3: So, according to COMSEK, amongst the most popular ETFs on

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Speaker 3: their platform in twenty twenty five, investors were accessing, you know,

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Speaker 3: one hundred of the biggest tech companies in the world

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Speaker 3: or the largest companies making a positive impact on the planet.

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Speaker 3: So different salads for different folks, but an ability to

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Speaker 3: have exposure to a whole heap of companies in just one.

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Speaker 2: Trade, okay. So what it sounds like to me is

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Speaker 2: that this might actually be a lot easier than say,

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Speaker 2: buying lots of individual shares.

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Speaker 3: Yeah, so's kind of play that out. So let's say

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Speaker 3: that you wanted to invest in the two hundred biggest companies.

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Speaker 2: In Australia, the ASX two hundred.

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Speaker 3: Nice one. So if you wanted to invest in every

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Speaker 3: company in the ASX two hundred, you would need to

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Speaker 3: research and identify what two hundred companies were referring to. Yep,

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Speaker 3: you'd need to do two hundred separate trades. So orders

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Speaker 3: I want to buy one share of this, one share

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Speaker 3: of this, one share of this two hundred times, you

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Speaker 3: need to pay a brokerage fee two hundred times. You

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Speaker 3: need to track two hundred different investments. You'd probably receive

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Speaker 3: two hundred different annual reports, and you might need some

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Speaker 3: paperwork in a tax return for two hundred different holdings.

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Speaker 2: Yep.

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Speaker 3: Now it sounds exhausting, it's a lot. It's two hundred

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Speaker 3: times a lot. So with one asx two hundred ETF,

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Speaker 3: for example, you can make one purchase with one trade,

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Speaker 3: you pay one brokerage fee, you track the one investment,

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Speaker 3: and receive one tax statement at the end. But you

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Speaker 3: still get the exposure to the same two hundred companies,

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Speaker 3: but you kind of get the ETF to handle much

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Speaker 3: of the administrative heavy lifting for you. Now, it's important

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Speaker 3: to note that in exchange the ETF or the company's

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Speaker 3: run these ETFs, they charge a small management fee, and

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Speaker 3: that's often between about zero point zero three percent and

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Speaker 3: zero point seven percent of your investment. So they're not

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Speaker 3: doing you a full favor. You're paying for that convenience.

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Speaker 3: But it's rising in popularity, so it's definitely worth talking about.

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Speaker 2: Yeah, I'm starting to understand I guess why these have

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Speaker 2: taken off so much in popularity or I'm hearing so

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Speaker 2: much more about them. I think for so long, investing

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Speaker 2: has felt like a really closed space to young people

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Speaker 2: and young women in particular. I mean hearing you list

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Speaker 2: off the two hundred things that you would need to

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Speaker 2: do and read and be involved in to get a

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Speaker 2: slice of the asx two hundred in the kind of

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Speaker 2: traditional sense, that's exhausting, and I think that's intimidated a

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Speaker 2: lot of us away from dipping our toe into this.

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Speaker 2: Is that why ETFs have taken off recently.

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Speaker 3: I think that's a huge part of the reason, and

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Speaker 3: that convenience and the ability to kind of enter into

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Speaker 3: what is a very daunting task from a very beginner

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Speaker 3: stage of investing is incredibly attractive. But I also think

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Speaker 3: it's responding to some real economic pressures. So I mean,

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Speaker 3: if you think about cost of living expenses, the increasingly

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Speaker 3: distant dream of home ownership, a lot of young people

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Speaker 3: are looking for ways to start that wealth building that

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Speaker 3: don't require a six figure deposit or family connections, and

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Speaker 3: it does seem to be the ETFs are one of

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Speaker 3: the main ways that young people especially are starting their

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Speaker 3: investment journey. Got it, and you don't need too much

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Speaker 3: to get going, So most brokers will let you start

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Speaker 3: with a few hundred dollars and you can set up

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Speaker 3: regular monthly contributions of as little as fifty or one

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Speaker 3: hundred dollars a month, for example, to steadily build that investment.

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Speaker 4: Yeah.

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Speaker 2: I was going to ask you about that, because some

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Speaker 2: of the kind of curiosity I've had with buying shares

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Speaker 2: has been dissuaded I suppose by sometimes there are a

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Speaker 2: huge minimum first spends that you have to make. It's

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Speaker 2: like you want to dip your toe, but you've got

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Speaker 2: to have all this money up front to make a

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Speaker 2: big commitment, and that really puts me off.

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Speaker 3: So this is the opposite of that. This is kind

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Speaker 3: of you can almost get started for anything above say

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Speaker 3: fifty dollars. Yeah, so it really is an entry level

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Speaker 3: way in I think the other main reason. So you've

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Speaker 3: got that kind of accessibility point, you've got the economic point.

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Speaker 3: The third point that's really important is that diversification factor.

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Speaker 3: And that's a really fancy way of saying it's a

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Speaker 3: way for you not to have to put all your

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Speaker 3: eggs in one basket. So if you invested one thousand

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Speaker 3: dollars in just one company and that company goes bankrupt,

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Speaker 3: you lose your entire one thousand dollars. But if you

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Speaker 3: split the one thousand dollars across an ETF that holds

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Speaker 3: stocks in two hundred companies, and one of those companies

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Speaker 3: goes bankrupt, you'd only lose a small slice of the

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Speaker 3: overall value of that ETF. And there's a chance that

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Speaker 3: another company in that two hundred actually has doubled in value,

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Speaker 3: and that kind of then evens itself out in some cases,

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Speaker 3: and so it would take all two hundred companies collapsing

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Speaker 3: for you to lose everything, which is far less likely.

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Speaker 2: We'll be right back after a quick break with a

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Speaker 2: message from today's sponsor, Emma.

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Speaker 1: Have you heard of comsec pocket ETFs. It makes it

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Speaker 1: easy to explore investing with with ETFs like you and

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Speaker 1: Sam are talking about, and you can get started with

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Speaker 1: as little as fifty dollars.

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Speaker 2: And it sits inside the combank app.

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Speaker 1: Yes, so you can invest in companies, assets or industries

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Speaker 1: in one simple trade. Select from ten themed ETF options

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Speaker 1: that match your interests, and pay just two dollars per

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Speaker 1: trade for investments up to one thousand dollars. Consider the

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Speaker 1: TNCs and fees and charges at comsect, dot com, dot

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Speaker 1: au and the pds for each ETF. Prior to making

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Speaker 1: an investment decision. Trading and investing involves risk, including potential

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Speaker 1: loss of your investment. The value of your investment may

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Speaker 1: go down as well as up.

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Speaker 2: So to use your metaphor, instead of investing in just

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Speaker 2: the creuton, you can invest in every element of the

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Speaker 2: salad or for my metaphor, instead of just investing in

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Speaker 2: the milk bottle, you can get your strawberries and cream,

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Speaker 2: your snakes, your jelly babies.

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Speaker 3: And to carry on my metaphor, you don't even need

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Speaker 3: to make the salad. Wow, salads made for you.

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Speaker 2: It's making sense in a way it's never made. It

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Speaker 2: says to me before, Sam, You're very good at explaining

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Speaker 2: this stuff. Are all ETFs the same? Like? Are there

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Speaker 2: different types?

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Speaker 3: Can I keep going with new metaphors?

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Speaker 2: Please do?

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Speaker 3: Okay? So there's kind of two different categories of ETFs.

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Speaker 3: There's a passive ETF and an active ETF. Okay, I

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Speaker 3: want you to think about passive ETFs as photocopiers. So

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Speaker 3: all they do is copy something out there. So it

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Speaker 3: might be that there's an ASX two hundred ETF. All

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Speaker 3: they're doing is looking for what those two hundred companies

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Speaker 3: are and copying it into an ETF for you. Okay,

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Speaker 3: So there's no fancy decision making, there's no kind of

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Speaker 3: categorizing which stocks do what.

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Speaker 2: It's just automatic.

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Speaker 3: You're either in the two hundred or you're not got it.

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Speaker 3: But then you've got active ETFs, and I'd say they're

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Speaker 3: more like painting. So that's where there's a fund manager

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Speaker 3: of fund managers behind the scenes saying we think that

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Speaker 3: this bundle of stocks, we think that this salad with

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Speaker 3: all of these ingredients are going to beat the market

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Speaker 3: if you approached it another way. So it might be

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Speaker 3: a whole bunch of stocks that particular fund managers have

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Speaker 3: said these stocks we think have long term stability. Yeah,

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Speaker 3: and it's more kind of a judgment call and an interpretation,

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Speaker 3: like a good painting rather than just a copy of

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Speaker 3: a print.

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Speaker 2: Okay. So there's the party mix you can buy off

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Speaker 2: the shelf from the supermarket, or there's a bespoke party

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Speaker 2: mix that an expert goes around, like you know what

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Speaker 2: the movies. When you can pick which lollies you want

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Speaker 2: and how many of each lolly exactly, you can have

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Speaker 2: that party mix. That's an active ETF.

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Speaker 3: That's very good.

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Speaker 2: So that's pretty straightforward. I do want to talk Sam

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Speaker 2: about the risks though, because of course there are always

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Speaker 2: risks when it comes to investing and some critical things

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Speaker 2: to be aware of. Can you talk me through some

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Speaker 2: of I guess the downsides or hidden complexities of this.

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Speaker 3: Yeah, and this is probably where my salad metaphor does

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Speaker 3: fall over in this is more complicated than a simple

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Speaker 3: salad or a party mix. So first of all, I

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Speaker 3: think it's important to say that diversity isn't always enough

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Speaker 3: if you invest in ETF focused on a particular sector.

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Speaker 3: Let's say you want to invest in the biggest tech

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Speaker 3: companies on the planet. You might buy an ETF in

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Speaker 3: tech that gives you a little slice of Google, Apple, Microsoft,

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Speaker 3: and dozens of others. But if the entire tech sector struggles,

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Speaker 3: that whole investment is going to feel it. So it's

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Speaker 3: kind of like having a salad that's only made of

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Speaker 3: different types of lettuce, and then lettuce goes through a

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Speaker 3: rough trot, so then you're still in trouble. The other

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Speaker 3: thing that I wanted to quickly mention is about currency,

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Speaker 3: and it's this is getting into the weeds a little bit.

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Speaker 3: But if you buy an ETF that invests in American companies,

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Speaker 3: you're also accidentally making a bet on the Australian dollar.

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Speaker 3: So let's say that US companies grew by ten percent,

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Speaker 3: but the Australian dollar also gets a bit stronger. You

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Speaker 3: might only see seven percent growth because you're holding that

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Speaker 3: in Aussie dollars. So there's a couple of different strategies

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Speaker 3: to get around that. But essentially, you know, making a

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Speaker 3: bet on another currency always has risks associated. And then

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Speaker 3: finally it's the fees. So while many ETFs do charge

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Speaker 3: around the point three to point seven percent annually, some

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Speaker 3: niche or really active ETFs with lots of painting and

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Speaker 3: judgment calls, they might charge point eight percent or more.

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Speaker 3: And that difference does compound over time, and you should

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Speaker 3: always check that management fee before buying into an ETF.

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Speaker 2: Okay, got it? So things to consider, Read the fine

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Speaker 2: print on the fees, consider the strength of the currency

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Speaker 2: that you're buying in, and also consider the strength or

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Speaker 2: potential weakness of the sector that you're looking at investing in.

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Speaker 2: So what's the bigger takeaway here, Sam about ETFs and

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Speaker 2: young Australians. What does this whole discussion really represent?

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Speaker 3: As I was kind of figuring out how to approach

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Speaker 3: this with everyone. The idea that kept coming back to

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Speaker 3: me was about democratization and evening the playing field for

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Speaker 3: everyone to get started on their investment journey, but also

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Speaker 3: to grow that investment over time with monthly contributions, yearly contributions.

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Speaker 3: And I really do think that a twenty four year

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Speaker 3: old with five hundred bucks can access the same diversified

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Speaker 3: global portfolio that would have typically required much larger sums

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Speaker 3: of money or a team of advisors thirty years ago.

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Speaker 3: That's now open to everyone. But I do want to

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Speaker 3: say though, that easier access doesn't mean you're always going

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Speaker 3: to make the right choices. And the sheer number of

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Speaker 3: ETFs available, I mean there's over three hundred and sixty

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Speaker 3: ETFs in Australia alone, you can still make some bad decisions.

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Speaker 3: And so I think if I was to leave you

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Speaker 3: with one thought, it's that ETFs are tools. They're not

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Speaker 3: a solution. So they're exceptionally useful for building a diversified

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Speaker 3: portfolio cheaply and efficiently, but they don't eliminate the need

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Speaker 3: for us all to think about our financial goals and

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Speaker 3: the time horizon when we want to get that money

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Speaker 3: back and actually sell those stocks or how much risk

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Speaker 3: there is involved with that particular decision. I like the

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Speaker 3: way that ASEK and money Smart have emphasized this. They've said,

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Speaker 3: you have to read the product disclosure statement before investing.

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Speaker 3: And also if if you're unsure whether ETFs do suit

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Speaker 3: where you're at, consider getting some financial advice. And there

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Speaker 3: are people that know a lot more than you and

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Speaker 3: I and it's their entire jobs to kind of guide

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Speaker 3: you through this decision. And that's also a worthy venture.

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Speaker 2: Brilliant, so so helpful, Sam. Thank you for your patience

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Speaker 2: and understanding cow Sam helping me become a student of

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Speaker 2: the world of ETFs. That was really helpful for me,

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Speaker 2: and I'm sure plenty of people listening have learnt a

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Speaker 2: lot from that. Thanks for taking us through it.

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Speaker 3: Of course, enjoy the party meets.

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Speaker 2: Oh you know, I will. That's all for today's deep dive.

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Speaker 2: We will be back in your feed soon with another

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Speaker 2: deep dive, but until then, have a great day.

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Speaker 4: My name is Lily Maddon and I'm a proud Arunda

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Speaker 4: Bungelung Calcottin woman from Gadigl Country. The Daily oz acknowledges

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Speaker 4: that this podcast is recorded on the lands of the

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Speaker 4: Gadighl people and pays respect to all Aboriginal and Torres

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Speaker 4: Straight Island and nations. We pay our respects to the

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Speaker 4: first peoples of these countries, both past and present.

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Speaker 2: Before we go, here is a quick message from today's sponsor, Comsec.

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Speaker 2: easy way to take the first step.

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Speaker 2: start investing in a broad range of ETF options.

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Speaker 1: simple way to start building your investment journey.

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Speaker 2: Check out pocket ETFs in your combank app to learn more.

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Speaker 2: Consider the TNCs and fees and charges at comsec, dot

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Speaker 2: com dot Au and the pds for each ETF prior

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Speaker 2: to making an investment decision. Trading and investing involves risk,

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Speaker 2: including potential loss of your investment. The value of your

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Speaker 2: investment may go down as well as up,