“Hi Tash, I would like to get started with investing but I find it all so overwhelming and confusing. Any advice on where to begin?”
I know what you mean! There is certainly no shortage of options when it comes to investing, and if you don’t know what to look for it’s down right confusing!
Investing in an index fund can be a great starting point for beginner investors. Index Funds are essentially a managed fund that invests in a particular index, like for example the ASX200.
The beauty of starting out with an index fund is that:
- They’re low cost and easy to buy. There is not a lot of work involved in running an index fund, so they have low admin fees and you don’t need much money to invest in one.
- They’re good for diversification. An index fund will generally give you exposure to lots of different companies and industries. For example, the top 200 companies listed on the Australian Stock Exchange (aka the ASX200) are made up of banks, telcos, mining companies, pharmaceutical companies, energy companies, etc.
You can invest in an index fund in a few different ways (and this is where it really starts to get confusing!) such as through a Listed Investment Company (LIC), Exchange Traded Fund (ETF) or retail managed fund.
I can see your eyes are already starting to glaze over, so let’s forget the finance jargon for a moment and talk about it in terms that us ladies really understand…
The little black dress
I want you to think of the index fund as your little black dress (or LBD as I like to call it).
You know, the one that’s a key starting point and a must have for every wardrobe. Much like an index fund, the LBD is a great way to diversify your wardrobe as (with the right accessories, of course!) it can be used for a number of different occasions.
When you go shopping for an LBD, you usually have an idea in mind:
• Does it need to be formal, casual, smart casual, Something else entirely?
• Are you looking for something cheap or something designer?
• Short or long? Tight or baggy? A-line or full skirt? Price range?
If there is one thing women are good at its analysis – and if we’re being honest these questions probably don’t even cover the full extent of it!
Well, shopping for an index fund, is really no different. You just need to shift the way you think about it.
Types of Index funds
So if an index fund is our little black dress, then LICs, ETFs and retail funds are essentially the different retail outlets you can buy your LBD from.
In other words…
LICs are the ASOS, KMart, and H&Ms of the investment world. You can typically buy shares in a LIC for as little as $5-$10.
ETFs are your mid-range options. Think Portmans, Review, Forever New or a designer knock-off. Share price typically ranges from $20-$500 depending on investment style. For example you can buy shares in an ETF that invests in the top 200 companies listed on the ASX for about $50-$100.
Retail managed funds are a more “up market” version of an ETF (which, like that designer LBD, you probably don’t *really* need!) While they both do the same thing, you generally need a financial adviser and a minimum of $5,000 in order to invest in a retail fund.
With me so far? Just like with our little black dress, there is more to making this decision than just price – so stay tuned as we are going to cover the pros and cons of each option in the upcoming months (including how this all affects your tax return).
In the meantime, if you would like more of a helping hand with managing your cash, make sure to check out our Money Bootcamp.
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The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.
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