With lucrative returns on offer, Wall Street has become something of an investing playground for many Australians.
A record $5 billion was invested into Wall Street stocks last year by Australians, according to data compiled by investment firm Global X.
The investment firm specialises in ETFs (exchange-traded funds) — pooled investments, or a basket of stocks, that are listed on an exchange as a single “stock”.
The Australian ETF market grew by 38 per cent over the past year, Global X said, reaching roughly $245 billion, although the firm noted the data was “preliminary” and would be updated later this week.
Ed Freeman is one of many Australians wanting a slice of America’s economic pie.
He has hundreds of thousands of dollars in Wall Street stocks, including Warren Buffet’s Berkshire Hathaway company.
“I started building from 2015,” he said.
And he’s investing for the long term.
“If you’re holding long term, you’ll be fine,” he said.
“Like the 2015 entry point that I got in at — it would have to fall quite a long way to get back to that, and if it did, I’d probably add some more.”
According to Global X, the ETF market is growing at a 10-year compound annual growth rate of 33 per cent per annum.
Marc Jocum says investors are spoilt for choice. (Supplied)
“Net flows into Australian ETFs exceeded $30 billion in 2024, breaking the previous calendar year record of $23.6 billion set in 2021,” Global X’s product and investment strategist Marc Jocum told the ABC.
“I think overwhelmingly because, in recent years, that’s been the financially smart thing to do,” former Bank of America chief economist Sale Eslake said.
“Since the end of 2019, the Australian share market as represented by the All Ords is only 25 per cent, whereas the main index in the US, the S&P 500, is up 84 per cent and the NASDAQ is up 119 per cent.
“That is, for example, if you’d bought a portfolio of NASDAQ shares you’d have made almost five times as much money as if you’d put the same amount of money into Australian shares.”
And, it seems, investors are spoiled for choice in terms of the range of US stocks available to invest.
“And that’s not also taking into account that you have gained something on the currency as well because the Australian dollar’s weakened against the US dollar, so you get more Australian dollars for every US dollar you have, as well as benefiting from a stronger share market,” Mr Eslake said.
“Whereas the Australian share market is dominated by miners and banks, and there are very few options for getting exposure, in particular, to technology companies, the US, and in particular the NASDAQ, is full of them.
“So people who want to get exposure to what are regarded as the industries and the companies of the future are much more likely to find that in the US market than they are here.”
New investors ‘trading online themselves’
MooMoo Australia’s chief commercial officer, Michael McCarthy, says technology has opened the floodgates for anyone remotely interested in making money on Wall Street.
“Almost all of the new generation of investors are trading online themselves,” he said.
Analysts point to optimism about the US economy for the year ahead. (AP: Peter Morgan)
“Many of them on the phone app.
“That seems to be the way of the future.
“Now having said that, there’s still room in the market for all kinds of investment styles, and there are people who are still speaking to a broker on the phone, but that’s increasingly diminishing over time.
“[Younger Australians] leverage the power of technology to give themselves direct access to the markets.”
But, Mr McCarthy warns, there’s no such thing as easy money when it comes to investing.
“At some stage, the music will stop, and investors should prepare now for the inevitable correction that’s likely to come in markets.”
Mr Eslake has a similar warning for enthusiastic amateur investors.
“People with long memories, of whom I’m one, will recall there was an enthusiasm for high tech stocks in the latter part of the 1990s called the tech bubble, that ended up badly for those who were still in the market after March 2000,” he said.
“And there are some astute observers who think that similar risks are building up in the US market today.”
Not enough ‘due diligence’
Mr Freeman worries too many Australians invested in Wall Street will ultimately lose money.
“It’s the easiest it ever has been really to set up an online brokerage account and get started. It’s almost too easy,” he said.
“That’s probably part of the problem.
“They don’t do enough research or due diligence before they make some of their investments.
“I think it’s easy for everyone to do: both people that are well equipped to do it, and those that are not so well equipped to do it,” Mr Freeman said.
As for this calendar year?
Analysts point to optimism about the US economy, but much will ride on decisions made by incoming US president-elect Donald Trump, and the direction of interest rates both here in Australia and overseas.
