Chapter 7 - Investing for Different life stages using ETFs

30 September 2020
As you move through life, your investment needs to move with you. When you’re just entering the workforce in your early 20s, with a long investment horizon ahead, your financial circumstances and investment objectives will be very different to when you’re approaching retirement some 40-plus years later.

How can you adapt your investment approach to meet these needs at life’s various stages? Which investments might give you the best chance of reaching your financial goals? Here we’ll look at four life stages and some investment considerations at each stage, and then look to where ETFs might help.

As we’ve discussed in chapter three, Exchange-traded funds, or ETFs, provide exposure to a diversified portfolio of securities such as shares, bonds or cash in a single trade on the ASX. A combination of ETFs across different asset classes can help build a robust and diversified investment portfolio, tailored to current investment objectives.

Found this chapter outside of the Ultimate Guide to ETFs? Check out the full guide!

Stage 1 – Early adult years/starting out

A Chinese proverb says that “A journey of a thousand miles begins with a single step”. Starting an investment portfolio can be daunting, but you’ll have a long investment horizon, so time is on your side.

While your initial balance may be small, two things are working in your favour:

  • The magic of compounding – starting early can have a significant positive impact on your wealth in the future, and
  • You have a long investment horizon – you have time to weather market cycles as you build your wealth.

ETFs are an attractive way for newcomers to start investing to get a sense of what investing is about, and to start building their wealth. They’re easy-to-use and cost-effective, and the diversification they offer is an important benefit not just when you’re making investments for your wealth now, but also over the longer term.

Stage 2 – The Accumulation Years

By now you might have a better job that’s paying you more money. You may also have dependents or a mortgage. Your outgoings are likely to be higher, and you’ve probably started to become more conscious of planning for the future.

With more capital to invest, you might look to diversify your portfolio and add a broader range of exposures. Diversification is still one of the best ways to reduce risk, as it ensures not all of your returns come from the same sources and are influenced by the same factors.

It’s important to build a solid long-term core portfolio as your foundation, to which you can consider tactically adding smaller positions. Adding global companies, for example, can help diversify your portfolio, while subsequently adding smaller exposures targeting potential growth areas, such as investment in technology sectors, or regions such as Asia or India, may help boost returns.

ETFs can help here, as they typically are highly diversified, which can mitigate some of the risks associated with an individual share performing poorly.

Stage 3 – Pre-Retirement/ Accumulation

Your focus now is potentially on preparing for retirement. With a shorter time horizon, you might look to start rebalancing your portfolio and seeking more capital stability – reducing exposures to equities and increasing your allocation to less volatile assets such as bonds and cash.

ETFs can make such rebalancing straightforward, as they are an efficient way to access not only shares, but also these lower-risk, more defensive assets.

Stage 4 – Retirement

Retirement can last a long time, and objectives when first going into retirement can be very different from the later stages.

With no salary to count on, your investments (including super) will likely provide the bulk of your income. At this stage, you can look to ETFs that are more defensive and income generating, and even reposition your equities portfolio into funds with specific investment objectives aimed towards generating income.

How can ETFs help?

ETFs can help at all the life stages described above, as there are ETFs suited to the financial goals investors typically have at each stage.

Building a foundation

In establishing your investment portfolio, setting the foundation for your portfolio should be your highest priority – a small number of cost-effective, diversified fund investments that establish a bedrock to which other investments can be added.

ETFs are well-suited for this. In one ASX trade, you can get broad exposure to a sharemarket – something that is harder and more expensive to achieve by buying individual companies.

For example, the BetaShares Australia 200 ETF (ASX: A200) provides exposure to the 200 largest companies on the Australian sharemarket in one trade, at a management fee of just 0.07% per year, or just 70 cents for every $1,000 invested.


One of the benefits of an ETF is that it gives you a convenient and easy-to-manage way to build diversity into your share portfolio. In volatile market conditions, diversification or “not putting all your eggs in one basket” can be one of your strongest defenses.

Generating income

When it comes to thinking about returns from your Aussie shares, for many people, dividends are a big part of the story. Historically, dividends have made up a significant proportion of the total returns from the Australian sharemarket. When the income your investments generate becomes a key focus, there is a range of ETFs across shares, bonds, cash and hybrids that can offer attractive income streams.

While investing can seem daunting, putting in the effort to get your strategy right gives you the best chance of reaching your financial goals. Once you work out what life stage you’re at, there are many options to help you get your investments sorted – and ETFs are a good place to start.

Find out more about why you may need financial advice if investing in ETFs in the last chapter.

Head back to the Ultimate Guide to ETFs

The table below displays some of the International Broad Based ETFs available on our database with the highest three-year returns (sorted highest to lowest by three-year returns and then alphabetically by provider name). Use Canstar’s ETF comparison selector to view a wider range of products. Canstar may earn a fee for referrals.

About Richard Montgomery 

Richard Montgomery Richard Montgomery is responsible for BetaShares communications strategy and implementing strategic marketing communications for adviser and investor audiences. Previously, Richard worked as a communications consultant to, among others, the Australian Securities Exchange, the Stockbrokers and Financial Advisers Association, and Kaplan Professional.

Follow him on LinkedIn.

This article was reviewed by our Content Producer Isabella Shoard before it was published as part of our fact-checking process.

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