10 ETF questions answered
InvestSMART recently hosted a webinar covering everything from budgeting to investing, including how to build the perfect ETF portfolio. We received a lot of great questions in the lead-up to the event as well as on the day, so we got our team of experts to tackle a selection of them. Some questions were general while others related specifically to our ETF portfolios.
Let's take a look at the questions and what our experts had to say.
Q. Are crypto or gold ETFs worth having in my portfolio?
Deciding what to have in your portfolio is always a personal decision and must be based on how much risk you want to take to earn a return and how diversified you want your portfolio to be. The more risk you are prepared to accept, then the greater the potential return (and potential loss). Modern portfolio theory says there is an optimal pool of different assets that will give you the best return for the least amount of risk - the "holy grail" of investing.
Having a small allocation to gold or crypto ETFs in a well-diversified portfolio may not add a huge amount of additional risk and may provide an additional return (and uncorrelated return - they may go up when everything is falling). At the very least, they may make your dinner table conversation on investing more interesting. Alastair Davidson, Head of Funds Management
Q. What are the best ETFs to buy for kids?
When choosing ETFs for kids, think long-term. Children's extended investment horizons allow for a growth-focused approach, potentially weathering short-term market volatility for greater long-term gains.
Consider broad-based index ETFs tracking Australian and global markets. These provide diversification and exposure to overall market growth. Look for options with low fees - over decades, even small fee differences can significantly impact returns.
To spark their interest, you may explore thematic ETFs aligned with future trends or your child's passions, such as technology or sustainability. This can make investing more engaging and educational.
Don't forget to reinvest dividends and distributions. This powerful strategy compounds returns over time, which is particularly beneficial for young investors.
Set up regular investments to take advantage of dollar-cost averaging. As your child grows, periodically review and adjust the portfolio. Remember, the goal is to provide a strong financial foundation while teaching valuable money lessons along the way. Tom Wilson, Investor Education & Product Specialist
Q.  What is the best investing approach to set up long-term high dividend-yielding assets? 
It is very difficult to find shares that consistently provide a high dividend yield. Bank shares have typically been high dividend payers in Australia, but they also have volatile share prices, so you may get a good dividend but potentially lose more if the share price falls. The same goes for Telstra. Overseas shares usually provide smaller dividend yields and have the added risk of currency movements affecting their value. Intelligent Investor has recently provided a report on high dividend non-bank Australian shares.
You can get more consistent franked income from bank hybrids. These are preference shares issued by the major banks that can convert into ordinary shares in certain circumstances. The dividend yield is usually linked to short-term interest rates which can go up or down depending on what the Reserve Bank is doing.
There are also fixed-income ETFs that hold Australian or international government and high-creditworthy corporate-issued bonds that can pay a high income. Alastair Davidson
Q. How do I limit overlap or owning too many different types of investments?
It's a common concern, especially if you've accumulated multiple ETFs over time. Overlap typically occurs when different ETFs hold the same underlying shares, which can happen more often than you might think.
To keep tabs on this, review your ETF holdings quarterly. It's not about selling entire ETFs but rather understanding your overall exposure. Use your ETF providers' websites to check the holdings of each fund. If you notice significant overlap, consider rebalancing by reducing allocations to similar ETFs or consolidating into broader-based funds.
Remember, some overlap isn't necessarily bad. The key is ensuring your portfolio aligns with your intended strategy. To simplify this process, consider using portfolio tracking tools like InvestSMART's free portfolio manager. Or, if you're unsure, seek advice from a financial professional to help optimise your ETF mix for better diversification and risk management. Tom Wilson
Q. Do you think ETFs are better than Listed Invested Companies (LICs)? 
ETFs and LICs are both listed investment vehicles that contain various investments. However, there are some major differences between ETFs and LICs. Firstly, ETFs will always trade around 'Net Asset Value' (the value of assets less liabilities) and can be bought or sold in large volumes as units are issued or redeemed. Trading LICs is dependent on there being sufficient buyers or sellers to meet demand and, given there are usually more sellers than buyers, LICs normally trade at a discount to Net Asset Value.
Secondly, ETFs are unit trusts and are required to distribute all of their income and capital gains on a pre-tax basis each year. LICs, on the other hand, have to pay tax on their income or capital gains and can choose not to distribute any of the after-tax income or capital gains.
Both ETFs and LICs usually offer the chance to reinvest any distributions but that only applies to the cash component and not any franking credits. So, with ETFs, you can invest more of any gain made, though you may get less franking distributed from ETFs. Alastair Davidson
Q. I'm terrible at investing little, often. I tell myself that if I can't invest a big chunk at a time, I can't do it. How do I change this mentality?
The solution is simple: put your investing on autopilot. Automation is your best friend when it comes to building a consistent investment habit. Set up a regular direct debit to your investment account. This 'set and forget' approach removes the mental barrier of making a decision each time. You're investing before you have a chance to talk yourself out of it.
Consider platforms such as InvestSMART, which allow regular contributions and wait until you've accumulated enough cash to purchase multiple holdings, maximising efficiency. This strategy leverages dollar-cost averaging, potentially reducing risk by spreading purchases over time. It also takes advantage of compound interest - even small, regular investments can grow significantly over time.
Remember, consistent investing beats trying to time the market with large, infrequent contributions. Start small, stay consistent, and watch your wealth grow steadily over time. Tom Wilson
Questions about InvestSMART's portfolios
Mitchell Datson from our Portfolio Services team answers a number of questions about InvestSMART's portfolios.
Q. Can dividends/distributions be automatically reinvested?
They certainly can. Our accounts have a feature called the 'Income Sweep' that can be turned on or off at any time. If you opt to have the feature turned 'on' then any dividends/distributions received will be accrued and paid out as a lump sum every month, but if you opt to have it turned 'off' then distributions/dividends will be received as cash then invested across your portfolio during the next rebalance.
Q. Aren't we doubling up on fees by using you as you also charge fees?
ETF management fees will still be applicable and we certainly focus on keeping them as low as possible without sacrificing quality or returns through our choice of ETFs. We have always advocated for investors who have the time, desire and skill to research, select and appropriately weight their own ETFs through an online broker to do so as any reduction in fees can assist in better returns over time. However, we have found that many investors do not necessarily meet all three of those criteria and we offer a low-cost solution where you can pay between $55 and a maximum capped fee of $550 a year to have it watched over by our team of experts.
Q. Does ownership of the ETF remain with the investor or InvestSMART?
Our Professionally Managed Account (PMA) offers full legal ownership of the underlying holdings through a CHESS-sponsored brokerage account in the name of the investor or investment entity and their own Holder Identification Number (HIN).
Q. Can we invest only a part of our SMSF in your portfolio?
Absolutely. While we are trusted by many SMSFs to handle their entire portfolio there are certainly others who use our investments for only a portion or a particular asset class where they lack exposure. For example, some SMSFs may already hold investment property, Australian shares and cash but need exposure to international shares; they can then utilise our International Equities Portfolio to plug their diversification gap.