Compared to individual company shares or actively managed funds, ETFs offer investors several benefits, such as affordability, dividends, diversification, tax efficiency, and the ability to know what you own. But, as with any investment, there are risks and fees involved.
EFTs are affordable
ETFs are much cheaper than actively managed retail funds. Their management fees are often less than 0.5% and generally no more than 1%. This is considerably lower than the 1.5% to 2.5% charged by actively managed retail funds. And yes, a difference of 1% is big, particularly when you think of it sitting in your SMSF for 20 years. In such a scenario, a 1% saving could boost your retirement nest egg by one fifth.
Buying ETFs has become particularly attractive for super fund investors with a long-term investment horizon. This is because ETFs not only offer savings through reduced management fees, but they can generally outperform a managed fund over the long-term. This is made clear in a Standard and Poor’s survey that found, amazingly, that despite all the expertise that goes into selecting stocks for an actively managed fund, 75% of managed funds in Australia failed to beat the overall movement of the S&P/ASX 200 over the previous five years.