By Clayton Daniel of Fund Your Ideal Lifestyle

I remember over a decade ago when I didn’t know anything about investing. It’s a really good frame of reference to have, and one that I hope I never lose.

Because investing can seem ten million times more complex than it really is. Why? Well, money is an emotional topic, and the first time you do anything it seems hard.

So with that in mind, I wanted to explain all the financy pants terms that get thrown around, and give some explanation as to where all the pieces of the puzzle fit in. I think the more you understand about where you are investing, and what you are investing in, the more control you will feel, and ultimately the more comfort.

So here we go.

Starting right at the top we have the ever-ethereal word ‘market’. This word gets thrown around a fair bit. It basically means the same as it always has. A place where people gather to buy and sell. But instead of buying and selling fish or bread, they are buying and selling assets like property or equities.

So when something is traded on the market, it really means it is traded in a place where there are buyers and sellers. If an asset has a market price, it simply means the price is at a point between where buyers want to buy and sellers want to sell.

Now let’s talk about the most common type of asset traded on the market – an equity. An equity is called as such as when you own it, you own equity in a company. You own a part of the company. Equities have the remarkable distinction of being able to interchange their name at any given moment. Have you ever heard the terms ‘shares’ or ‘stocks’. Yeah, same thing.

At this stage, now you know that equities are traded on the equity market (or shares/stocks are traded on the share/stock market). This is where you can buy and sell blue chip shares like the big four banks, or speculative mining shares. There are thousands of different stocks to trade on the stock market. The only limits are your limits to research and what equities you are comfortable in buying.

Okay, so that’s great right? You can go out right now and start investing. Fantastic. What are you going to buy? If you are an investment professional, you will have an investment philosophy that works for you. If you are not an investment professional, you probably don’t have an investment philosophy.

Therefore you can either spend a lot of time researching to become an investment professional, you can hire an investment professional for you, or you can buy what’s called an Exchange-Traded Fund (ETF). An ETF is simply a computer algorithm that invests your money into equities. The benefit is, for every change to the portfolio you aren’t charged a fee. Instead, you pay an ongoing percentage fee to cover the management of your portfolio. This reduces the conflict of ‘churning’ investments which is the natural result of a business model where revenue is made through the amount of buy/sells that are made.

As you can see above, the amount of global money invested in ETF’s has grown significantly since the start of the Global Financial Crisis (GFC) in 2007. So why has the ETF market grown by 400% in less than a decade? Well for a few reasons.

Firstly, investors were burned so bad during the GFC that they got sick of paying for stockbrokers, financial advisers, and fund managers to invest their money. The argument that people were better at picking equities than computers were largely proven wrong.

This in turn created the rise in Modern Portfolio Theory. Put basically, you get 80% of your gains and losses simply by being in the market. There are easily refutable points to this theory, but put simply, it provided a framework to build a portfolio without human involvement.

Which brings me to technology. The technology to build these trading algorithms have improved like all other tech has improved over the decades. These days there are many different types of ETF’s, though most the money is still in the easy to understand simple ones.

As always, price is very important. Some ETF’s are so unbelievably cheap that it’s hard to see where the revenue is being made by the product issuer. Some ETF’s are so cost effective that on a million-dollar portfolio you can pay as little as $300 a year.

And with all these benefits it drew in many investors, which in turn created more awareness, and more education. To the point where now ETF’s are essentially the most popular way to invest. And considering the points above, it’s not hard to see why.

Now you know how to invest in the market, by purchasing equities through an ETF. Brilliant. You’re nearly there. So how do you do all this? How do you pick which broker to use, and which ETF’s to invest in. Well again, you can either learn to do it yourself, hire someone to do it for you, or use technology.

This brings me to the last piece of financy pants education today. The technology to make all this happen – Raiz. Raiz is simply an app which takes the small amount of round ups on purchases you make in everyday life, and invests them for you into ETFs.

Raiz themselves don’t have anything to do with the ups and downs of the market. They simply make easy what has typically been hard to do – open an account and start investing. They take the manual work out of starting a brokerage account, and choosing which ETF’s to invest into.

They take all the complexities out of investing, and make it as easy as buying your daily coffee. And that to me is brilliant. As a personal finance expert, the ease in which they make investing is unbelievable. Raiz are the packaging to make investing easy for the every day person.

So to recap: You invest in the market, by purchasing shares, with an ETF, through the Raiz app.

Look at you – all financy pants…..

By Clayton Daniel of Fund Your Ideal Lifestyle