One question I get all the time is around what stock tip I could give.
The simple reply is to invest in Australia, and the best way to do this is by buying the S&P/ASX 200 via an exchange traded fund (ETF).
Also by Peter Switzer:
Just as BHP has the ticker code BHP and Westpac has WBC - so, you can buy these stocks online - there are also ticker codes for ETFs.
ETFs with ticker codes IOZ, STW, A200 and others can be bought as single units. If the stock market rises by 10 per cent from now to the end of 2022, you’ll get about a 10 per cent return - minus a small fee.
These ETFs give you the biggest 200 companies listed on the Australian stock market. And they give you diversification across many sectors, from mining to financials, consumer staples (such as Woolworths) to discretionary consumer businesses, such as JB Hi-Fi.
They also give you exposure to healthcare, tech stocks (such as Xero) and payments companies (such as Zip).
BHP is the biggest company in market value terms, while Webjet comes in at number 200.
If you want to simply own our top 20 listed companies, the ETF with the ticker code ILC gives you that.
The chart above shows what kinds of returns you could have made banking on our top 20 listed companies.
In December 2010, the unit price was around $20. Today, it’s $27.50, but it was as high as $30 before the recent stock market sell-off because of inflation, rising interest rates and Vladimir Putin fears.
Making $7.50 on $20 represents a 37.5 per cent return over a little more than 11 years, which is about a 3.4 per cent return each year.
This might not sound like much but these companies pay dividends and these dividends would add up to a return of more than 4 per cent.
Add those together and that’s a return of about 7-8%, and a little more if you gain from franking credits.
The table below shows what this ILC has returned up to the end of January this year.
Over the same time, below shows what would have happened to the returns on your money left in a ‘safe’ bank deposit.
When is the best time to buy into an ETF?
In a perfect world, it’s when the market has been smashed, as it was after the Coronavirus crash of the stock market.
If you’d bought ILC at the bottom of the crash, you’d be up 42 per cent on the unit or ‘stock’ price in two years.
And you’d be up about 4 per cent a year from dividends, which tallies up to about 50 per cent, or 25 per cent a year.
And you could have done this while investing in some of the best 20 companies in Australia.
Some organised smarties buy ETFs like IOZ or ILC on a regular basis, which means they get some really good buys.
They get occasional bad buys but they still own great businesses.
Others buy these quality ETF assets when the market has hissy fits. Over time, these investors do really well.
The chart below of the overall stock market over a long time (and after facing some scary moments) shows why.
Scary sell-offs and great buying opportunities
The bottom line?
Buy quality assets anytime but especially when stock markets go crazy.
Patience and a commitment to quality stocks can be so rewarding.