How do I invest in ETFs?
Once you’ve decided what ETF to invest in, the next decision is the amount and how often to invest.
You may choose to set aside an amount each month or decide to use the spare cash you have.
With CommSec Pocket, you can invest as little as $50*.
Set up automated payments
One way to automate your payments is ‘dollar cost averaging’, which involves setting up your account to automatically invest a fixed amount on a regular basis.
By automating your payments, you can take a less hands-on approach and still be sure that you won’t miss a month.
Grow your money
As your investment grows, you can choose to set up a distribution reinvestment plan with the share registry.
This ensures that the dividends from your investment are automatically reinvested and you don’t need to worry about manually reinvesting.
Things to know before investing
There are several fees you might come across once you start investing in ETFs. These are some of the most common fees:
Brokerage fee
The first cost you face when investing in ETFs is the brokerage fee.
Every time you buy or sell units in an ETF, it’s the same as if you were buying or selling shares in an individual company - you have to pay a brokerage fee.
Management cost
ETFs also incur an annual management cost, which is generally included in the unit price (the current market price of units in the fund).
The management cost includes all relevant fees and costs associated with managing the ETF, including custodian fees, accounting fees, audit fees and index licence fees.
The annual management cost is expressed as a percentage. For example, a 0.5% annual management cost would represent $50 on a $10,000 investment each year.
Management costs can vary significantly from one ETF to another – from as low as 0.1% to as high as 1% or more – so it’s important to check before investing.
Selling cost
Another cost that you may incur when buying or selling an ETF is known as the ‘bid/ask spread’.
This is the difference between the highest price that a buyer is willing to pay for units in an ETF and the lowest purchase price a seller is willing to accept.
When you decide to buy or sell, the order will be placed as soon as possible at the best price available. However, depending on the bid/ask spread at the time, this may mean paying more than the ETF is worth.
Tax on distributions and capital gains applies to ETFs, just as it does with shares, and there may be different tax implications for investing in international ETFs.
For example, if you invest in an ETF that is operated in the US, you would be subject to US withholding tax. But this is generally reduced under the Australia/US Double Tax Agreement, based on several conditions.
ETFs vs managed funds
ETFs usually have lower fees than actively-managed funds because they generally don’t buy and sell shares as often.
The more managed funds buy and sell, the more they have to pay through commissions, which can affect a fund’s performance and eat into your returns.
However, as well as the potential for actively-managed funds to deliver higher returns than ‘passive’ funds like ETFs, you can usually make regular contributions for no extra cost, whereas with an ETF you must pay a brokerage fee each time you invest.
Our investment options
Start investing in a selection of ETFs from as little as $50+ with CommSec Pocket, a micro-investing app that lets you invest anywhere, anytime.
*Other fees & charges may apply.
+CommBank App and CommSec Pocket T&Cs apply, $2 per trade up to $1,000; 0.20% for trades above $1000.
