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:
Important Information
The information on this website is general advice only. This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the product.
A Product Disclosure Statement for Raiz Invest and/or Raiz Invest Super are available on the Raiz Invest website and App. A person must read and consider the Product Disclosure Statement in deciding whether, or not, to acquire and continue to hold interests in the product. The risks of investing in this product are fully set out in the Product Disclosure Statement and include the risks that would ordinarily apply to investing.
The information may be based on assumptions or market conditions which change without notice. This could impact the accuracy of the information.
Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.
Past return performance of the Raiz products should not be relied on for making a decision to invest in a Raiz product and is not a good predictor of future performance.
