Our folks invested in dirty energy and other dodgy things via mutual funds. Millenials can do better. Say hello to Exchange-Traded Funds, your way to invest in clean energy, emerging technologies, cannabis and more.
ETFs are to millenials what old-school mutual funds were to the baby boomers. Our tech-savvy, socially conscious, transparency demanding, price aware, skinny jean and man bun-wearing generation is hooked on this low-cost, transparent investment vehicle.
But what are ETFs anyway?
Basically, it’s a "basket" of a whole bunch of stocks and other investment assets combined into a single investment product that’s traded on the stock market 24/7. So you can sit in South Africa and, with a single, easy transaction, invest in a wide range of stocks and other investments globally, and then you can track how your investments are doing any time of day or night.
See why millenials in more developed markets have already switched to ETFs faster than you can say " single shot almond milk frappe" (ETFs are the investment vehicle of choice for 91% of millennial investors in the US, according to the ETF Investor Study by brokerage firm Charles Schwab & Co)?
South Africans are lagging behind this trend, but that’s changing fast because ETFs really are the smart – and obvious – choice for investors in their 20s and 30s. Here are five reasons why:
Tech is a gateway drug
Millenials have a bad rep for being " entitled" . Well, when it comes it comes to investing, we do want it all… online, and we want it now – as in 24/7.
The growth of online platforms has made it incredibly easy for us to access ETFs and play in the big leagues, even if we don’t have huge sums to invest.
Transparency is trending
We’re not like our folks; we want to know exactly how much we’re paying and don’t want to lose chunks of our life savings to Bob the Balding Broker, and other fees.
Low cost, tax-efficient ETFs enable us to build robust portfolios that are balanced and diversified, all at an extremely competitive price. Less fees equal better returns equals better long-term prospects. It’s a no-brainer.
We like to know what we’re buying – or buying into. We care whether we’re investing in dirty energy or companies that are razing the Brazilian rainforests. You know, socially conscious. And of course we like to have everything bespoke…
ETFs fit that bill perfectly. Want to invest in emerging technologies and clean energy? There is an ETF for that. Asian markets only? There is an ETF for that too. Cannabis? Yep – you guessed it; you can plant your medicinal seeds via an ETF.
Easy does it
With global ETFs carrying annual fees as low as 0.04% and providing investors with a broad exposure to hundreds or even thousands of company stocks, this investment vehicle is a no-brainer for first time investors.
What makes ETFs even more palatable than the latest plant-based poke bowel, is that they are the perfect building blocks for the Swiss Army knife of investment accounts: a tax-free savings account (TFSA). With its low minimums and great tax-perks, a TFSA is a great entry-level account for young investors. Just make sure to get your TFSA allowance (R33 000 per annum) in before tax season ends on February 28th each year.
Real-time, real control
We’re the kids who pretty much grew up online. Just like we want minute-to-minute updates on our friends via social media, we want real-time updates on our investments too. Mutual funds that update once a day? Yawn. We want to be able to plug in 24/7 and see what our investments are doing. With ETFs priced throughout the day, we can log in and feel far more in control.
And there you have it. A few leading reasons why young investors are into ETFs. With close to 80 ETFs listed on the JSE and new ones joining the party every month, South African investors now have some great options available to join this global trend. Because there really is no age limit on smart investments.
Siya Nomoyi is Head of Index Management at Sygnia.