ETFs for the long game

No matter where you are in life, you need to consider investing for the long game. Securing your financial future depends on maximising returns and minimising risks. One way to achieve that is through diversification. This is where ETFs may play a starring role in your portfolio. The sheer range of ETFs available today gives investors numerous ways to diversify.

Diversification and asset allocation may not fully protect you from market risk. It is important to speak with a financial adviser before making any long-term investment decisions.

What you’ll discover

• How ETFs can diversify your portfolio and help you achieve your long-term goals
• What to consider when choosing an ETF for a long-term investment
• How ETFs can complement your existing long-term investment portfolio

Take control of your future

It’s a common misconception that you need a tonne of money to start investing. Or that you can’t start investing when you are young.

Just like you don’t need a diploma in finance to start investing, age and salary shouldn’t stop you from playing the long game when it comes to your financial future.

Consider your changing goals over time

A good first step is to map out an investment plan that works for different stages of your life and knowing your level of risk tolerance at each stage. Choose an investment strategy with an appropriate risk and time horizon to meet these goals.

For example, a typical retirement investment plan when you are younger may start out as 70% equities, 20% bonds, and 10% “other”, which reflects your higher appetite for risk when you’re young and the longer time you have to recover any losses.

As you get closer to retirement, you'll likely want to lower risk, so your portfolio may be 70% bonds, about 20% in equities, and up to 10% in cash and term deposits. This means your portfolio is potentially not as exposed to a sudden shock like a market crash just before you want to start drawing down your investments to fund your retirement.

Balancing your portfolio at all stages

Successful investing depends on your ability to balance risk and return at each life stage.

The stock market can be a volatile place. It can decline substantially in a single day, or over a short period, creating fear amongst investors.  However, time in the market is often seen to be better than ‘timing the market’. So, think about the long game!

Already have a long-term plan?

We always push ourselves to do better – why would we not try to push our money to do more?

Regardless of whether you have an existing long-term investment strategy in place, ETFs can be a great way to build out your existing portfolio.

How ETFs can help meet your investment goals

Investment strategies are just as unique as investment goals. ETFs are a flexible investment vehicle, with many different uses.

·        Looking to build a stronger core?

Built to provide broad market exposures across stocks and bonds, core ETF exposures are designed to be long term portfolio holdings to help grow your wealth over time.

·        Seeking income?

Bond ETFs aim to assist investors in building diversified portfolios that offer an efficient, liquid, and transparent way to access the fixed income market. Bonds are typically lower risk than equities, so fixed income ETFs can help you to build out the more conservative, income-generating part of your portfolio.

Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.

·        Prepare for market turbulence

Factor investing is the strategy of targeting securities with specific characteristics such as value, quality, momentum, size, and minimum volatility. These persistent, well-documented characteristics can help investors understand differences in expected return. They’re tools that professional investors commonly use to seek outperformance during different market cycles, and they can help to build resilience in your equities allocations for when markets become more volatile.

Key takeaways

1.      It’s never too early to think about investing for the long term

2.      The reward-risk equation is critical to a successful long game

3.      ETFs are flexible investment tools with many different uses and offer many ways to meet your investment goals.

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This is not a recommendation to invest in any particular financial product.

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