5 Things To Know Before Buying An ETF ！！！🚀🚀🚀

🔍So they don't charge much. The fees cover all costs like custody, accounting, audits, and index licenses. But with ETFs, you don't pay these fees separately. They're already included in the share price. No need to send Vanguard a check every year. It's all part of the investment. Keep an eye on the fees, as different providers charge differently.💰

And, for instance, I'm in the US, but if we switch to the Australian IVV page, we see that the exchange is ASX and the domicile is Australia. Secondly, you can buy ETFs that track international markets from your own domestic exchange. You don't need an international trading account.

💡3.ETF STOCK PRICES DON'T ALWAYS GO UP🎢
What you might have heard from someone is that ETFs and passive investing generally yield about 8% per year. That is indeed true, but it does not mean you will achieve 8% every year.

History has shown us that the S&P 500 index and most major market indices average out to approximately 8% annually over the long run. However, take a look at this chart. This represents the historical returns of the Australian market. Our market has averaged around 11% annually for the past 120 years.🚀

In most years, the chances are you'll get between 10 to 20% return, but some years you will make a negative return. Have a look at the worst year, 2,008. In that year, the Australian market lost between 40 and 50%. So like any stock, there is volatility in etfs. It's not just a straight line up at 8% per year. However, history suggests that over a long holding period, your return might average out to around 7 or 8% per year.

But of course, you need to hold the market tracking ETF for long enough to let the market do its thing over time, over the decades to improve your likelihood of getting that return. So that's consideration No. 3.

💡4.ARE YOU BUYING THE RIGHT EFT? AND ARE YOU INVESTING PASSIVELY OR ACTIVELY? 🎢
Consideration No. 4 is to understand what your strategy is and understand whether the ETF you want to buy fits that strategy. There are a lot of products out there which have the name ETF, but here's the thing to remember. Most people use etfs for passive investing through dollar cost averaging, means you buy the market and only the market and you keep buying it at set time periods and you never stop. So technically, if you're now buying a gold ETF and a renewable energy ETF, you're no longer passive investing, you are active investing. You are no longer being a market participant. You are trying to select individual investments that will do better over time. So fourth consideration is with your etfs.

Passive investing is strict. You diversify across the whole market and that's it, nothing else. And that's what we have 100 years of data for. That's where we get our 7 to 8% annual return number from. But if we start buying this, that and the other, then we don't have any level of confidence in our returns going forward. Could be 8%, could be 10, could be negative 10. So think about your strategy. What are you trying to achieve with the etfs you're looking at buying? SO, here is the key to this post: the formula of 3 ETF portfolios. ⭐

3 ETF Portfolio Allocation= 60% Foundation ETF + 20% Solid dividend ETF + 20% Growth ETF

💡5.TAX IMPLICATIONS🤔
Then lastly, we have a huge consideration for etfs that is very frequently overlooked, and that consideration is tax. You know, etfs are an investment when you sell it, there are tax implications. Now with etfs, chances are you aren't going to sell for a very long time, like decades into the future. But you still need to consider the tax implications as soon as you buy them because eventually when you sell, you'll have a capital gain event. So you need to know when you bought the shares and at what price. So when you buy an ETF, keep that info handy.

Another consideration is that, at least in Australia, dividend income is considered taxable income. You have to add this to your tax return each year, which means you'll have to pay more in tax. And, of course, the final consideration is what tax implications there will be when you sell your shares, hopefully in the distant future, from the capital gain in the year you sell them. So, if you accumulate a large ETF portfolio over decades, it might be worth seeing an accountant to advise you on the most tax-effective way to sell down your assets👏👏👏

🥰That's all for today's post. If you have any questions or wanna share anything with me, comment below💬💬