Simplifying ETFs - A comprehensive guide to ETFs and retirement investing

Simplifying ETFs

A comprehensive guide to ETFs and retirement investing

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Savvy investors are taking advantage of ETFs to help boost retirement income. The ETF experts reveal why they should be part of your retirement strategy.

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ETFs are one of the fastest growing categories of investment products in the world. And for good reason.

E Published by: YourLifeChoices Pty Ltd Publisher: Leon Della Bosca Editor: Janelle Ward Copy Editor: Dairne John Writers: BetaShares, Dr Roger Cohen David Bassanese, Leon Della Bosca Designer: Word-of-Mouth Creative Phone: 61 3 9081 9997 Email: admin@yourlifechoices.com.au Web: www.yourlifechoices.com.au

All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes.

IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor.

BetaShares Capital Limited (ABN 78 139 566 868 AFSL 341181) (BetaShares) is the issuer of the BetaShares ETFs. Before making an investment decision, investors should consider the Product Disclosure Statement (PDS), available at www. betashares.com.au. This information does not take into account any person’s objective’s, financial situation or needs and is not a recommendation or offer to make any investment or to adopt any particular investment strategy. Investors should consider the appropriateness of the information taking into account such factors and seek financial advice. Investments are subject to investment risk, investment value may go down as well as up, and investors may not get back the full amount originally invested. ASIC’s MoneySmart website has useful information for people considering investing. The MoneySmart resources can be found at https://www.moneysmart.gov.au/ investing. ASIC’s MoneySmart website has no affiliation with BetaShares.

Copyright: YourLifeChoices Pty Ltd 2021

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TFs are an efficient way to diversify your portfolio and a means to ‘hedge your bets’ on the share market. They’re a simple, transparent, low cost and flexible investment option with high rates of solid returns.

There are many benefits to ETFs, such as low expense ratios, abundant liquidity, range of investment choices, portfolio diversification and more. This makes them ideal for beginner investors as well as savvy SMSF managers and experienced investors.

And, for retirees or investors at any life stage, ETFs may very well provide everything you want from an investment.

While no investment is perfect, knowing the advantages and disadvantages of ETFs can help you navigate the risks and rewards, and help you to decide whether they make sense for your portfolio.

That’s why YourLifeChoices has teamed up with BetaShares to create this comprehensive guide to ETFs and how they may be the ideal way to boost your retirement income.

Here’s what you’ll find inside …

Contents What is an ETF and why should you care?

We explain all you need to know about exchange-traded funds, why they may be the ideal investment option for all types of investors. We cover who can help you get started and tips to help you make the most of ETFs and maximise your earnings.

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Using ETFs as part of your retirement strategy Investing for a healthy financial future is important for all investors, young or old. Leon reveals how ETFs can pave the path to an early retirement and, for those of you already retired, how ETFs can provide an ideal alternative income stream.

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Basic and advanced ETF investing strategies From beginner investors to old hats – whatever your investment goal, there’s a strategy to help you hit your target.

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Don’t fall into the Retirement Trap BetaShares senior investment specialist Dr Roger Cohen reveals how you can ensure financial independence in retirement and what you need to do to avoid the ‘Retirement Trap’ – where saving and investing more can actually result in lower retirement income.

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

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What is an ETF and why should you consider ETFs as part of your retirement plan?

When you’re getting started on your ETF journey, there can be a lot of information to process which can sometimes be overwhelming. Let’s get you started.

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n exchange-traded fund (ETF) is like a cross between an index managed fund and a share. ETFs are one of the world’s fastest growing categories of investment products.

They’re like a managed fund, but with some differences. An ETF is an openended investment fund with access to almost every corner of the market and every major asset class and traded on the Australian Securities Exchange (ASX).

In investing terms, ETFs allow you to buy a suite of shares or assets in a single ASX trade and allow you to invest in markets or assets that otherwise can be difficult or expensive to access.

And because you are buying diversified exposure, if one of the shares held by the ETF performs badly, it is unlikely to have a significant effect on your overall investment.

ETFs offer the same diversification benefits as actively managed funds, but usually at a lower cost Most ETFs are passively managed funds that aim to track the performance of a given index or asset class and

provide the returns of that index or asset class – less any fees. Because there are no analysts or fund managers being paid to try and beat the index, management costs are typically lower than for actively managed funds.

Traditional managed funds, on the other hand, are usually actively managed by a fund manager trying to beat the market with their investing expertise, which often means higher costs for you.

Some actively managed funds may outperform ETFs in the short term, but history has shown they rarely outperform them in the long run.

In a nutshell, ETFs are simple, transparent, cost effective and flexible

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

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investment vehicles that can provide diversified exposure to a range of asset classes.

Who will help me?

Investing in ETFs is simple. As they trade on the ASX, you can buy ETFs as you would shares via an online broker, your stockbroker, or your financial adviser.

When you’re ready to buy or sell an ETF, simply use the specific fund’s ASX code. A list of the relevant ASX codes for each product can be found on the specific product pages.

If you already have a portfolio and are willing to put in the time managing it, then you can use ETFs to assist in balancing risk and potential return and achieve your investment goals.

You may need some advice from a finance professional before making these types of investment decisions.

Try to find a fee-only financial planner – or someone who does not earn commissions on your investments.

“The most common question I get from friends about investing is not “What?” but “How?”.

“Often, they have heard of advisers and brokers, online platforms, and apps that can invest their spare change, but are confused about where to start,” says BetaShares associate account manager Tom Wickenden.

“With your savings account likely earning less interest than your weekly coffee bill and all these options now available – there really has never been a better time to start investing.”

When you have someone in place, ask them these questions: • How much risk should I be taking with my money?

• How much of my portfolio should I put into ETFs? • Given the size of my portfolio, how many individual ETFs would you suggest?

• Which asset classes should I use ETFs to invest in?

• What management fees do the ETFs you are recommending charge?

• Which selection of ETFs would you advise for an optimally diversified portfolio?

• Do I keep my present investments, or sell them? If I keep them, which ETFs will complement those investments?

• How can my superannuation/ income stream/pension complement my new ETF portfolio?

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“It’s no surprise – investing has changed a lot in recent years, and fast.”

There are three main ways to invest: person-to-person, through online brokers, and through application brokers.

“Both the app-broking and online broking spaces are continuing to evolve with new platforms frequently emerging aiming to provide simple, low-cost access, to the benefit of all types of investors. There are plenty of options to suit different types of investors, each with its pros and cons,” says Mr Wickenden.

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Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

What do you need to know before you invest in ETFs? There are nine things to understand including an ETF’s structure, whether the ETF is currency hedged, ideal time to buy and sell on the ASX and more.

1. Understand an ETF’s basic structure and liquidity before you start to trade 2. Know what the Net Asset Value (NAV) is, and then use the Indicative Net Asset Value (iNAV) (if one is available) to help determine the price to trade 3. Is the ETF Currency Hedged or Unhedged?

4. Understand bid and offer spreads 5. Know the difference between ‘market orders’ and ‘limit orders’ 6. Time when you buy/sell an ETF 7. Can ETFs help deal with market volatility?

8. What happens to my assets in the event of a product issuer’s bankruptcy?

Learn more about what you need to know before you invest in ETFs.

Choosing the best ETFs There are more than 200 ETFs available on the ASX. In choosing the funds that are right for you, it’s important to consider your financial circumstances and objectives.

Are you looking to round out an existing portfolio of stocks or managed funds? Then your ETFs should complement your existing investments.

If you are just starting out, you should generally include stocks and bonds and diversify within those two broad asset classes.

ETFs can provide exposure across stocks, bonds, hybrids, currencies and commodities, so can be great building blocks when constructing a portfolio from scratch.

Mix and match your holdings appropriately Create a well-diversified portfolio that seeks to include various asset classes that are uncorrelated. This means that in periods when one part of your portfolio does not perform well, another part of the portfolio may perform better, mitigating the overall effect. Try not to invest in different ETFs that all focus on the same stocks.

As a start, you could consider investing in an Australian equities ETF, an international equities ETF, and a fixed income ETF.

Pay attention to cost Don’t pay more than you need to.

Index-tracking ETFs are typically low-cost, some more so than others.

If two ETFs offer similar exposure, compare their management fees when making your decision.

Your goal should always be to have a welldiversified collection of investments The management expense ratio (MER) is an annual cost (accrued daily in the fund) that covers management and administrative fees, and operating costs.

An MER of 0.45% p.a. means that your investment will cost you $4.50 for every $1000 you have invested annually.

Don’t put all your eggs in one basket ETFs offer a convenient and easy-tomanage way of building diversification

into your portfolio. The exposure across multiple investments that an ETF provides is one form of diversification. But it’s also important to ensure there is diversification between the ETFs in your portfolio – there’s little point choosing two ETFs that track similar indices. Choosing ETFs that track dissimilar indices will result in a more diversified portfolio.

Spread the load Make sure that no single ETF makes up too large a proportion of your portfolio.

What else should you look for in an ETF? As well as the type of exposure an ETF provides, and the costs of the fund, when looking for ETFs it’s important to consider who the ETF issuer is.

You’re going to want a reliable and experienced provider with a proven track record. Choosing an investment that meets your needs along with a client-focused provider, such as BetaShares, that is committed to education and product innovation, may be the perfect match.

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

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Risk management Your best form of risk management is diversification and it’s not a form of risk management you explicitly pay for.

You can choose an ETF ‘theme’ Do you think companies in the global cybersecurity sector, or global technology leaders such as Amazon or Facebook, may perform well? Then consider investing in ETFs that focus on these themes.

BetaShares’ Global Cybersecurity ETF (ASX code: HACK) provides exposure to the world’s leading cybersecurity companies in a single ASX trade, while the BetaShares NASDAQ 100 ETF (ASX: NDQ) is a convenient way to access the top 100 companies of the Nasdaq-100, including Apple, Amazon, Google and Facebook.

Or if you are looking for more stable, steady returns from fixed income, then bond or cash funds might be where the opportunities lie for you. BetaShares provides a range of fixed income options.

What risks should you be aware of when it comes to ETFs? The performance of an ETF is dependent on the performance of the underlying assets on which it is based. So, for example, if you choose an ETF that tracks the S&P/ ASX 200 Index, and the whole market suffers a dip, your investment will also see a decline in value.

This is referred to as ‘market risk’.

Importantly, ETFs are regulated unit trusts, which means that they have the same legal structure as traditional managed funds.

The ETF’s assets are held for the benefit of investors, and in the unlikely event that your product issuer suffers financial difficulty will not be available to the creditors of the issuer.

Investing for, and in, retirement Those of you investing for retirement will likely have a focus on accumulation and growth but may already be thinking about what you’ll need in retirement.

It may be in your interest to evaluate whether you are happy with your 6

super, including the mix of investments and the way they are managed. You may ask whether there is a reason to set up and SMSF or investigate any other investments you should consider in retirement. Now is the time to transition into assets with capital stability, as income is not a focus, but will eventually become important.

It’s also the ideal time to get ahead and prepare your retirement plan. You should consider: • What is your superannuation stream going to look like? You can do this with the ASIC Moneysmart calculator to help or see your financial planner.

• Work out your budget, including day-to-day expenses and money for holidays, renovations or other assets.

• Assess whether you have enough super. Should you be topping up?

• Think about the transition. Do you have enough for daily liquidity and short-term lump sums? Can you afford larger drawdowns for thing such as emergencies?

• Set up a timeframe for your transition to retirement, including building your retirement portfolio that focuses on income, capital preservation, and liquidity.

• Set up a timeframe for commencing the transition. Do you rip off the band-aid or dip your toe. Now is the time to decide on that process.

• Consider succession and estate planning.

Ideal funds for this life stage are: ASX:AAA – Australian High Interest Cash ETF ASX:INCM – Global Income Leaders ETF ASX:QPON – Australian Bank Senior Floating Rate Bond ETF ASX:HBRD – Active Australian Hybrids Fund ASX: BHYB – BetaShares Australian Major Bank Hybrids Index ETF Once you have decided to retire, it may take you a while to transition out of full-time employment. You will move from receiving regular income and, instead, start getting used to drawing down from your super fund.

Remember, retirement is a process, not a single point, and your portfolio can adapt to this process. At 65, you may have assets for short-term needs and liquidity but still be looking for growth. Later, you may look to shift into income assets only.

You can manage your portfolio as these needs change. You may look to stop dividend reinvestment plans, as

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

this could be handy income.

You may also consider how your income and assets affect your Age Pension eligibility, and whether you have enough income to fund medical bills and insurances.

The liquid nature of ETFs gives you the flexibility you need to spend, when you want to, in the first – or any – phase of retirement.

Ideal funds for this life stage are: ASX:UMAX – S&P 500 Yield Maximiser ASX:RINC – BetaShares Legg Mason Real Income Fund ASX:EINC – BetaShares Legg Mason Equity Income Fund Again, any of this information should be considered general and you should seek out a financial advisor before making any investment or decisions about money.

Key considerations What is the fund’s investment objective? Is it a passive or actively managed strategy?

If the ETF aims to track an index, what is the index methodology? For example, is it weighted by market capitalisation, fundamentally weighted, equal-weighted, or rules-based?

How often is the index rebalanced? If an index is frequently rebalanced, the decision to add or remove holdings can change market exposure and potentially increase trading costs, which may have an impact on investors’ returns.

What are the fund’s total assets under management?

What’s the difference between the fund’s return and the index’s return over time?

How volatile have the fund’s returns been over time?

What risks are involved with an investment in the fund?

How much do you need to start investing in ETFs? You can start with as little as $500. Where some other forms of investment might require a significant upfront amount, there is no minimum upfront requirement beyond what might be stipulated by your broker (typically $500).

That makes ETFs a great way for you to ‘dip your toe in’ and start investing.

Why ETFs are the ideal retirement investment option

Investing for a healthy financial future is important for all investors, young or old.

Investing for an early retirement

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any people tend to look at long-term investing as something that they would want to consider or action ‘one day’, but the first step to a long-term strategy can be taken today.

A new movement called the Financial Independence, Retire Early (FIRE) movement is well underway, as more and more people realise the value of long-term investing and taking charge of their financial futures. One of the challenges, however, is being able to make the right choices that not only grow your nest egg over time but also ensure you don’t pay too much in management fees while doing so.

The idea behind longterm investments The value of investing over the long term is often underestimated, as investors try to take advantage of shortterm fluctuations in sharemarkets. But the market often rewards those who have the ability and confidence to hold

on. Economic growth cycles of boom and bust can typically last anywhere from 2 to 5 years.

So, you see, cycles of boom and bust tend to even out with positive trends over the long term – which the savvy investor can capitalise on.

Look for capital appreciation over the long-term For younger investors who are starting their investment journey with an eye towards their future, one of the most important things to aim for is capital appreciation. Over long periods, many studies have proven the value of investing in shares for generating wealth.

BetaShares’ range of Funds includes equities ETFs that invest in a portfolio of shares and, in doing so, aim to produce capital appreciation over the long term.

The power of long-term investments Naturally, there are rises and falls in the market, but by maintaining a

focus on the goal of retiring early and having the patience to hold on for the long term, those with a distant investment horizon should have a better chance of meeting their objectives and seeing their investment grow, despite short-term fluctuations.

Consider this: a 50-year-old investor could invest $1000 every month ($12,000 a year), into a low-cost, broad market ETF. If this ETF grows at a rate of 4 per cent annually, after 25 years that investment could be worth over $500,000, minus any fees or expenses.

If you can afford a higher investment amount, you may be able to make it to retirement even faster.

Low-cost investments for the long run While returns are the main way you’ll reap the rewards of long-term investing, keeping fees to a minimum will also have a significant impact on your returns. ETFs are known not only for their simplicity and diversification, but also for being cost effective.

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

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Planning for an early retirement So you didn’t start investing at 25. As we mentioned earlier, you can start investing in midlife and still reap the rewards of long-term investing. Having a long-term focus allows you to ride out short-term fluctuations, while seeking positive returns that compound with time, especially when using ETFs that are low on management costs.

BetaShares’ Australia 200 ETF, for example, is the lowest cost Australian shares ETF currently available on the ASX with only 0.07 per cent p.a. management costs*. It also offers the advantage of accessibility, diversification, transparency, and quarterly distributions from dividend income.

ETFs fit the bill for low-cost, long-term investments. And if you can allocate a steady amount of your savings to long-term investments, you may not be too far away from realising your dream of FIRE!

Investing in retirement As you get closer to retirement age, you may feel the need to take a closer look at your investment portfolio to ensure you have enough to retire comfortably.

While volatile markets can rattle even seasoned investors, such volatility can be more detrimental for anyone relying on their portfolio to fund lifestyle needs in the short-term.

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Investors approaching retirement may not have the time to ‘ride out the storm’ and recover from market losses, which is why BetaShares’ Managed Risk series of Funds is an ideal solution. The Managed Risk series aims to defend against market losses whilst still providing exposure to the growth and income potential of Australian or international shares.

BetaShares has a range of Funds to help retirees meet their investment goals.

Investment specialist Dr Roger Cohen says: “A crisis such as the COVID-19 pandemic will test the behaviour and risk appetite of many investors. Key to long-term success is the ability not to be rattled by wild short-term swings in equity markets, and to maintain a portfolio that gives the best chance of achieving long-term goals, even at the expense of short-term discomfort.”

For investors who have reached retirement, BetaShares offers a range of funds focused on providing income.

These include the BetaShares fixed income ETFs and hybrid securities funds. The BetaShares Active Australian Hybrids Fund (managed fund) (ASX: HBRD), for example, gives

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

investors the opportunity to earn attractive, tax-efficient monthly income from a diversified portfolio of hybrid securities, actively managed with the aim of reducing the volatility and risk associated with owning hybrids directly.

There’s also the BetaShares Australian Major Bank Hybrids Index ETF (ASX: BHYB) which aims to passively track the performance of a diversified index of hybrids (preference shares) issued by the Big 4 Australian banks.

Diversify your investments Spreading your investments across a range of asset classes is a proven way to reduce risk in your portfolio.

Maintaining an adequate level of diversity helps protect portfolios should certain asset classes be more affected than others from market declines.

BetaShares’ range of Funds cover all the major asset classes, including Australian shares, international shares, fixed income, cash, commodities, and currencies.

Spending the time to research and look more into your retirement portfolio is often the most important step towards improving your future wellbeing.

Whatever your investment needs, BetaShares is sure to have a fund that will assist you in meeting your retirement investment goals. *Additional fees and costs, such as transactional and operational costs, may apply. Refer to the PDS for more detail.

Basic and advanced ETF investing strategies Whatever your investment goal, there’s a strategy to help you hit your target.

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here are a number of ETF investment strategies that can be implemented to help you reach your goals.

Strategic asset allocation ETFs can be used as part of your long-term strategic asset allocation.

Because they are simple to purchase, cost effective and transparent, and offer exposure to a diverse range of asset classes and strategies, ETFs are often used as long-term holdings.

Essentially, investors can use ETFs to construct a diversified, long-term portfolio in a cost-efficient way.

Tactical asset allocation Use ETFs to ‘tilt’ your overall portfolio towards, or away from, certain asset classes, regions, or sectors which you expect to outperform or underperform.

BetaShares Sector ETFs can be used to ‘overweight’ certain sectors of the market, which the investor considers will outperform the broader market. For example, investors with exposure to a broad Australian shares index fund might sell a portion of their investment and buy units in a financial sector ETF (e.g.: BetaShares Australian Financials Sector ETF (ASX: QFN)) if they believe the financial sector is set to outperform the broader market.

This investor would now be ‘overweight’ Australian financial shares. More broadly, ETFs allow you to implement a view on a particular market segment without the need to engage in ‘stock picking’. You can also diversify away from single stock risk.

Thematic ETFs Thematic investing is about trying to identify long-term transformational trends, and the investments that are likely to benefit if those trends play out.

Examples of these themes are climate change, and the rise of cybersecurity, which is increasingly becoming a critical threshold component of all technology solutions as more and more of our world goes online.

Investors can gain focused exposure to many of these themes via ETFs. To access the above two themes, for example, BetaShares offers the BetaShares Climate Change Innovation ETF (ASX: ERTH) and the BetaShares Global Cybersecurity ETF (ASX: HACK).

Core/satellite strategies This is where ‘core’ passive investments are combined with ‘satellite’ active investment strategies.

Essentially, the idea is to split the investment portfolio into two categories: Core: this should be the basis of the investment strategy, and should aim to produce market returns (otherwise known as Beta) via lowcost diversified investments Satellite: the aim of the satellite component is to outperform the

‘core’ holdings, and provide returns greater than the market return (otherwise known as Alpha) A core-satellite strategy provides you with the opportunity to outperform the market but at a lower overall cost to a completely ‘active’ approach.

Due to the cost effective, diversified nature of ETFs, they are typically an ideal way to get ‘core’ exposure.

Satellite strategies can then be achieved via individual stock selection, managed funds or targeted exposures using ETFs tracking more narrowly focused indices.

Parking cash equitisation ETFs can be used to ‘park’ cash while decisions are being made on investment strategies. For example, the BetaShares Australian High Interest Cash ETF (ASX: AAA) offers the opportunity to earn attractive monthly income from Australian cash, in a single ASX trade, without the need to open a bank account, lock your funds away in a term deposit, or seek out ‘honeymoon’ rates.

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

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Don’t fall into the Retirement Trap Australia’s superannuation system is meant to encourage financial independence in retirement, and to reduce reliance on the Age Pension. For some retirees, though, the retirement system works against these goals and creates a ‘Retirement Trap’, where saving and investing more can actually result in lower retirement income.

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he retirement system in Australia sees retirees drawing income from a combination of superannuation, the Age Pension, and external assets.

The pension is means tested, with entitlements calculated using an income and assets test. As assets and income levels increase, pension entitlements decrease and, at a point, cease. These entitlement levels and associated pension reductions are the primary drivers behind the ‘Retirement Trap’.

For an individual, there is an income range between $174 and $2026 per fortnight, where for every additional dollar earned, the pension is reduced by 50 cents. This effectively halves the value of additional earnings for retirees in this range.

For individual homeowners whose assessable assets are above $263,250, the pension is reduced by three dollars a fortnight (or $78 per year) for every additional $1000 in assets. To offset this reduction, each $1000, if invested, must generate an annual return above 7.8 per cent.

Work co-authored by Dr Roger Cohen, senior investment specialist for BetaShares shows that for Australians at retirement age, with savings between ~$350,000 and ~$600,000, increasing their savings may result in their income decreasing. This effect is also called the ‘Pensioner Taper Trap’.

times the government pension can be expected in retirement).

Retirees with a superannuation balance of between ~$350,000 and ~$600,00 will see their pension multiplier decrease as their superannuation balance increases.

The system therefore implicitly encourages these retirees to spend additional savings or redirect them towards exempt assets like their homes, instead of choosing to invest them to generate income. If a retiree in this scenario does invest their additional savings, they must generate returns more than 7.8 per cent per annum to exceed the pension entitlements that are lost. This is likely to entail a level of risk which is well beyond what is normally recommended for retirees.

Australian retirees can escape the Retirement Trap only if they can accumulate well over half a million dollars. Above this point increased savings will lead to increased income.

In its submission to the Retirement Income Review Panel, BetaShares outlined the Retirement Trap anomaly, and proposed a new retirement system model that would allow Australian retirees to choose to spend or save additional income or assets based on

Reductions in income can occur because such savings increases are unlikely to generate enough additional income to offset the pension entitlements that are lost.

To illustrate the Retirement Trap, BetaShares introduced the concept of a pension multiplier. This is a number (greater than or equal to 1) which represents the current or future income stream a retiree can expect relative to the Age Pension (for example, a pension multiplier of 1.5 means that income of one and a half 10

Source: CSIRO

Simplifying ETFs – A comprehensive guide to ETFs and retirement investing

their personal circumstances, without that choice being distorted by the structure of the system.

The Age Pension would become universal, with the means and assets tests discarded.

Compulsory superannuation contributions would be streamed into defined benefit schemes (to fund the universal pension) and defined contribution schemes (much the same as those which currently exist).

This streaming would be based on age, income, asset balances and other factors. Where a retiree has not fully funded their pension through their defined benefit contributions, the shortfall would be funded by the government. Within defined contribution schemes, individuals would still have flexibility and choice as to where their contributions are directed and how they are invested.

BetaShares acknowledged that such significant changes to the superannuation system would be controversial but argued that the proposed model would not only remove the distortions that discourage a certain group of retirees from increasing their financial independence, but would also reduce the financial burden on the government.

AUSTRALIAN SHARES INTERNATIONAL SHARES ETHICAL TECHNOLOGY CASH & FIXED INCOME GLOBAL SECTORS AUSTRALIA’S HOME OF ETF INVESTING DIVERSIFIED HYBRIDS EQUITY INCOME ACTIVE CURRENCY MANAGED RISK COMMODITY PROPERTY SHORT GEARED For over a decade BetaShares has been helping hundreds of thousands of Australian investors meet their financial goals.

With more than $18 billion under management across the broadest range of ETFs in the market, we are committed to providing liquid, transparent and cost-effective investment solutions.

BetaShares - Australia’s ETF specialist.

Invest in BetaShares ETFs just like any share on the ASX or speak to your financial adviser or broker.

LEARN MORE AT WWW.BETASHARES.COM.AU

BetaShares Capital Ltd (ABN 78 139 566 868 AFSL 341181). Investors should read the relevant PDS at www.betashares.com.au and consider whether the product is right for their circumstances. Investing involves risk.

BetaShares Capital Limited (ABN 78 139 566 868 AFSL 341181) (BetaShares) is the issuer of the BetaShares ETFs. Before making an investment decision, investors should consider the Product Disclosure Statement (PDS), available at www.betashares.com.au. This information does not take into account any person’s objective’s, financial situation or needs and is not a recommendation or offer to make any investment or to adopt any particular investment strategy.

Investors should consider the appropriateness of the information taking into account such factors and seek financial advice. Investments are subject to investment risk, investment value may go down as well as up, and investors may not get back the full amount originally invested. ASIC’s MoneySmart website has useful information for people considering investing. The MoneySmart resources can be found at https://www.moneysmart.gov.au/investing.

ASIC’s MoneySmart website has no affiliation with BetaShares.