Weather the storm

Carefully selected exchange traded funds can protect an investor during market turbulence – and even take advantage of it

- DARREN SNYDER

Covid-19 led us to panic-buy at the supermarket and to panic-sell on the sharemarket. As uncertainty around this global pandemic continues, Australia’s economy will remain turbulent.

Watching and acting on daily sharemarket price movements can soon become your worst enemy in uncertain times. What we do know is that expert advice always tells us to stay the course when it comes to investing, unless your financial situation and life circumstances absolutely warrant selling up.

Jonathan Shead, head of investments, Australia, at State Street Global Advisors, says one of the biggest mistakes you can make as a long-term investor is to fall into the trap of trading individual stocks and exchange traded funds (ETFs) daily (that is, trying to time the market).

“ETFs (like all shares) do allow you to trade in the moment. ETFs provide liquidity and are priced right throughout the trading day. That can lead to the temptation for investors to lose sight of their long-term investment goal,” he says. “We would encourage investors to focus on the long-term goals when trading ETFs and not to chew up their returns in transaction costs with trying to time the market.”

He says too often investors fail to account for the total cost of owning an ETF. They’re labelled as low-cost investment products, but not low cost if you’re constantly trading them. There’s the cost of trading an ETF as a security, as well as the expense ratio of managing the fund.

By their nature ETFs are an investment tool designed for the long term. They’re transparent, easy to use and generally low cost and give you broad market exposure. Existing in Australia for more than 25 years, ETFs have weathered volatile times before, says Shead.

Bulls and bears