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Making the exchange

I was wondering what you think about exchange-traded funds. Do you think they are safe and is it the right time to invest in these? I have heard people I respect recommend them but I am not sure about them.

There are different ETFs and some are ‘safer’ than others. For example, if you went to a high risk ETF where the returns could be excitingly high, they would be more risky than one that I like, which simply tries to represent the S&P/ASX 200. That means if the index rises by 10 per cent between now and the end of the year then you could make 10 per cent but then you add in the dividend payments, minus say a cost of 30 basis points, which of course they could charge.

On my show on Sky Business News Channel, I always ask whether bankruptcy would get in the way of a winning result and I am assured the shares that are purchased on your behalf in making up the ETF’s components remain assets designated to you, so that isn’t an issue to be concerned about.

Of course, if the market tanked you could get a hiding as your ETF would reflect the market’s dive.

Generally, I like these products and it takes out the picking problem for time-poor and knowledge deficient investors and as most fund managers don’t beat the index, it’s a fair way to get decent returns.

That said, don’t take this as advice but you can take it as education. Do your homework and seek advice from someone who knows your personal circumstances and your appetite for risk.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, October 11, 2010

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