What Are ETFs (And Why They’re The Ultimate Wealth Building Tool)

If you’re goal is to build long-term wealth, not saving isn’t going to cut it. You need to make your money work hard for you so that you’re generating passive income even while you’re sleeping.

That’s where investing comes into play.

We need to invest our money into a vehicle that will yield as pretty decent growth and outpace inflation.

That’s where the investing part comes in, and with 1000s (and I’m not exaggerating) of “investment” options available, I believe investing in ETFs should be the core foundational of your investing strategy.

It’s simple, easy, proven and easy to get started.

What are ETFs And Why They’re The Simplest, Most Proven Investments?

An ETF, or Exchange-Traded Fund, is a basket of investments, like stocks or bonds, that trades on an exchange like a stock, offering diversification and potentially lower fees compared to traditional mutual funds.

In other words, you’re investing in a singular fund diversified into 100s or even 1000s of companies.

What I love about ETFs is the simplicity and diversification. I can’t express how much diversification you’re getting with ETFs compared to investing in individual stocks.

Cause unlike individual stocks, your assets aren’t tied to a single company where if that company fails, your wealth disappears into thin air.

Instead, you’re invested in 100s of companies, so one company going bankrupt won’t have any effect on your portfolio growth. As of writing this (25th of March 2025), there’s a lot of noise about Tesla’s stock plummeting and their uncertain future.

What I say to that is that it has ZERO impact on your wealth building journey, and it’s just another noise the background.

If we let’s say Tesla goes bankrupt. Well, it’s just one of 4,300 publicly listed companies in America.

With ETFs, you’re buying real, tangible businesses that produce cash flow and drive the economy, not just looking and squiggly charts on a screen.

Think of Apple, Microsoft or Amazon. Those are companies you use or buy from every day. When you purchase an ETF, you’ll be invested in those companies along with 100s of other companies.

And those are real-life businesses that we purchase from frequently.

And even the GOAT investor, Warren Buffett, suggested to Lebron James to invest in index funds long-term

If you don’t know who he is, Warren Buffett is the greatest investor of all time, with a net worth of $163 billion as of March 2025. And since starting investing at a ripe age of 11 years old, it was through consistency and staying in the market even during turbulent times that he built his fortune.

And I’m aware that his main investing method was by picking core individual stocks and buying companies at a very cheap price.

However, he mentions time and time again that the average (99% of all investors) should invest in index funds/ETFs.

Why?

Because firstly, most people don’t have the time to research individual companies in-depth.

Secondly, index funds are the best passive investment that requires literally ZERO effort with all the upside long-term.

And when he suggests this kind of advice to Lebron freakin James, you know he means every word he says.

As a matter of fact, even expert fund managers whose full-time job is to beat the market end up failing in the long term. I mean 90-95% fail, which is absolutely wild considering that if it were other fields where 95% of employees failed at their jobs, they would be fired on the spot.

According to a report by S&P Dow Jones Indices, over a 3-year investment horizon, 80% of large-cap fund managers failed to outperform the S&P 500.

Over a 15-year investment horizon, that number increases to nearly 88%.

This means that by simply investing in a low-cost S&P 500 index fund, you could outperform nearly 88% of professional investors over the long term.

Actually, what’s the difference between index funds and ETFs

The difference between index funds and ETFs is that with index funds, you can only buy once a day, whereas with ETFs, you can buy multiple times a day when the market is open.

https://youtube.com/watch?v=fYYPRtRZ9Gg%3Ffeature%3Doembed

But the concept of these investments remains the same, which is that you’re diversified across so many different companies.

What are the best ETFs to invest in?

To simplify things, here are the ETFs I would invest in:

• VTS
• VAS

50/50 allocation.

Super simple and easy.

To summarise it, VTS invests into the total US stock market but the fund is listed on the ASX and in Australian dollars.

VAS on the other hand tracks the top 300 companies in Australia by market cap, including well-known corporations like BHP, Commonwealth Bank, Woolworths, Coles and Afterpay.

The reason I say to invest into these ETFs is because it’s good to be exposure to the US and Australian market at the same time. You never know which one is going to perform the best so I’d say getting exposure to both of them gets you the best of both worlds.

In the past 15 years, the Australian share market has returned a lot less than the US sharemarket simply because of the rise of huge tech companies like Amazon, Apple, Facebook and Google.

Now, just because it has outperformed in the last 15 years doesn’t mean it’s going to repeat the same way. As the saying goes: “Past performance is not an indicator of future success”.

And that’s so true in so many ways, and it’s incredible hard to predict which markets are going to perform the best in 10 or 15 years time.

However, one thing I’m pretty certain of is that the Australian and US economy is going to keep growing over the long-term, and they’ll do just fine.

{Show a chart of the performance of the Australian vs US sharemarket over 100 years, and how it’s very similar}

The Verdict

The verdict is that the average joe investor (like me) should invest most of their savings into ETFs/index funds as it provides diversification, less risk and more certainty that our investment vehicle will deliver returns (instead of investing in a dud and the stock price falling to ZERO).

It’s incredibly hard to beat the market and there are many reasons why experts fail time and time again.

And if Warren Buffet keeps suggesting it, I’m sure it means something. Don’t take my word for it. Take it from the words of the greatest, wisest and most experienced investor in history.