Volkswagen fuels market fears, ETFs remain the most reliable ride
The summary:
Last week, controversy surrounded
Volkswagen, as it was revealed that the German automobile manufacturer has
cheated on emissions testing for their cars. They have defrauded customers,
broken regulators’ rules in a big way, and will face suitably big fines as a
result.
What effect has this had on the
share price?
Since the news was revealed,
Volkswagen lost around 1/3rd of
their market value.
This story gives us a timely
reminder of why diversification is key, and the benefits of
buying into ETFs.
Imagine your portfolio was made
up of 100% VW shares. Last week you lost ~33% of
portfolio value.
Now imagine if you had some
diversified to 50% VW shares. You’ve just lost ~16.5%. This assumes that nothing
else in your portfolio loses value.
Now if you had diversified a lot
more (maybe using an ETF), to just 1% VW shares. You only lost ~0.33%. Again
this assumes that none of the other shares that compose the ETF loses (or
gains) value.
It’s a simple example, but it
shows the dangers of exposing yourself too much to any one stock. These
scandals specific to one company do happen, and companies lose big chunks of
value regularly. By using ETFs you can give yourself a smaller exposure to a
large number of companies, eliminating the risk that one bad holding will harm
your hard earned savings.
Raiz uses 7 different ETFs to
construct our portfolios for you, read more on ETFs here, and sign up to Raiz using the
link below.
Don’t have the Raiz App?
Download it for free in the App store or the Webapp below:
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