Your step-by-step guide to investing in ETFs for the first time
Investing in exchange traded funds is easy.
All you have to do is follow four easy steps.
Let's get started.
1. Choose your broker
As the name suggests, exchange traded funds (ETFs) are listed on the Australian Stock Exchange (ASX), and the only way to buy listed investments is through a registered stock broker.
The good news is that there are plenty of low-cost online brokers to choose from. Just Google online brokers.
Don't just focus on brokerage. Take a tour of the platform to make sure you're comfortable with the layout, and check features like the availability of quality research.
2. Open a broking account
Once you've selected an online broker, you'll need to set up a cash account linked to your broker's online trading account. This account holds money to buy ETFs and collects the proceeds if you sell any ETFs.
Some brokers specify which bank your linked account needs to be held with. Others are more flexible. Either way, setting up a cash account is pretty straightforward though it's quicker and easier if you're already a customer of the bank specified by your broker.
If that's not the case, you'll need to open a new account by providing 100 points of ID such as your driver's licence and passport plus your tax file number. It helps to have all these details on hand when you're ready to get started.
Once your application is submitted you can usually begin trading in as little as 24 hours.
3. Decide how much to invest
The minimum marketable parcel on the ASX is $500, so you'll need at least this amount plus brokerage for your first trade.
While it can be tempting to start small, trading with small sums will increase the cost of brokerage as a percentage of your trade. As a guide, brokerage of $15 works out to 3% off a $500 trade, but falls to 1.5% on a $1,000 trade.
If you're strapped for cash, it's possible to invest with just $50 and pay brokerage of only $2 by signing up to the CommSec Pocket app. It can be a money saver but you'll only get a choice of seven ETFs - and they may not be the ones you're interested in.
4. Buy your first ETF
Placing a buy order is where things start to get real. Log in to your online trading account, select the 'trading' option, and fill in the details of the ETF you want to buy. Each ETF has its own three- or four-digit ASX code - you can use this to identify your preferred ETF, but be sure to get it right. The codes can be similar for entirely different ETFs.
Your first trade will be a 'buy', so select this option from the online menu. Enter the quantity of fund units you'd like to purchase, or set a dollar limit for your trade.
You'll likely be asked to choose between a 'market' order, which means you're happy to pay the current market value that the ETF units are trading for. Or, you can select a 'limit' order, which lets you nominate the maximum price you're willing to pay per unit.
Next, you'll be asked to review your order. Check that everything is correct, and click the button to complete your trade. In the blink of an eye your order is sent through to the ASX though it can take two days for the transaction to formally settle - you'll receive notification from your broker. That's all there is to it. You've just become an investor in exchange traded funds!
Get stories like this in our newsletters.