Diary of an ETF Beginner: My $100,000 investing experiment
I've owned shares and property, but I still didn't understand how to choose an ETF or build a portfolio. With a $100,000 demo portfolio to play, I started learning from scratch.
Everyone has a different idea of what a good investment looks like.
To some, it's pouring their life's savings into starting a small business. Others might purchase an investment property or auto-invest a portion of their monthly wage via a trading platform or app.
If you're anything like me, your idea of a great investment might be buying a run-down Ford Falcon at auction and hoping to flip it for a profit after a little elbow grease.
I'll be honest: I'm not a great investor. This may come as a surprise given I have several investments, but my knowledge on the topic is staggeringly limited and, if you're reading this, maybe you're in the same boat.
But I'm eager to get a better grasp on investing and challenge some of the limiting beliefs I have around personal finance.
So, to start tearing down my own walls, Money has kindly agreed to give me $100,000. Don't worry, I haven't been entrusted with actual moolah - it's virtual money in a demo account on the eToro investing platform.
Over the course of this series, I'll be sharing my journey of investing in exchange traded funds (ETFs) for the first time, plus some direct shares as well.
Obviously, I'd like to end up in the green, but more than that, I want to become a confident investor and understand what actually moves the market.
What investing experience do I have?
To be fair, I'm not a complete beginner, even though my feeble attempts to understand shares and ETFs over the years mostly exist in the form of dusty, unread books on a shelf.
These were classics handed down by my mum, who I suspect never read them either.
I'm talking popular titles like Rich Dad, Poor Dad and The Warren Buffett Way. If it's any consolation, I have actually read The Barefoot Investor... almost to the end.
Our late grandparents also left my brother and I around $3000 in IAG shares, which have seen about as much growth as my failed Ford Falcon drift car project investment.
Even my bricks and mortar investment wasn't a fantastic one. Granted, I wasn't expecting a two-bedroom unit in Western Sydney to increase in value exponentially.
What I think I understand about investing
- The importance of long-term investing
- Diversification
- How ETFs actually work
- How to trade/buy ETFs
What still confuses me about investing
- How to compare ETFs and choose the right one
- Risk versus return
- How to construct a portfolio
- Market timing (and when to buy)
How I invested my first $15,000
But let's move past this self-inflicted humiliation ritual and get started.
Modern investing apps and websites like eToro are surprisingly easy to navigate once you spend five minutes setting up an account.
Within 15 minutes, I'd already set up my first two buy orders following some helpful tips from eToro's lead analyst Josh Gilbert.
The first was about $5000 into State Street's SPDR S&P 500 (SPY), a broad option Gilbert says has a solid track record with steady growth.
What is an ETF?
An ETF (exchange traded fund) is an investment vehicle that holds a diversified portfolio of assets and trades on a stock exchange, allowing investors to buy and sell units throughout the day at market prices.
ETFs can provide exposure to a wide range of strategies and asset classes, including broad market indices, sectors, active approaches, smart beta or factor strategies, thematic investments, and physical assets such as real estate or infrastructure.
Each ETF share represents a proportional interest in the underlying portfolio. Most ETFs are regulated investment vehicles, offering investor protections such as independent oversight and the segregation of fund assets from the provider.
Why I chose an ETF
I chose an ETF for the diversity it offers - instead of buying shares in just one company, an ETF combines multiple companies.
I landed on State Street's SPY because it comprises the best performers - Nvidia, Meta, Microsoft, Amazon, and Tesla - and smooths out the more dramatic ups and downs of direct shares.
What is the S&P 500?
The S&P 500 tracks 500 of the largest listed companies in the US. Many investors use S&P 500 ETFs as a simple way to gain exposure to a broad range of businesses through a single investment.
Why I bought Apple shares
To compare the experience and performance of an ETF, I also bought direct shares, namely about $10,000 in tech giant Apple (AAPL), which is undergoing a period of significant change and has just released its first foldable smartphone.
As someone with minimal investment know-how and a chunky HECS debt, it's a decent start but there's plenty more to learn.
I'm sure I'll be spending plenty of time in the State Street ETF Education space and also the eToro Academy, which offer free resources to learn about financial markets, trading strategies and asset classes.
What beginners should know before investing
- Investing is different from saving
- You don't need thousands to get started
- ETFs provide diversification compared to stocks
- Short-term market movements are normal
- Understanding risk is essential
If all else fails, at the very least, I'd like to be able to hold a conversation with a finance guru without having to constantly ask what they're talking about. Stay tuned to see if I succeed or find a car to invest in instead!
Next in Diary of an ETF Beginner: My first investments are in. On September 25, I'll reveal how my ETF and Apple shares performed, what surprised me most, and the lessons I've learned after my first few weeks in the market.
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