Top ETFs to Buy and Hold Long-Term for Australians

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When you search for ‘best ETFs’ online, you often get a list which may seem familiar (such as VOO, VWRA, SPY).

But, just how do we know if these really are ‘good’, or ‘best’ for us? What should we be looking for? 

This article will guide you in comparing some of the leading ETFs available.

First, set expectations. What outcomes do you seek?

While every investor is unique, for the purpose of this analysis, we’re assuming that you are:

  • A long-term investor whose investment horizon is more than 10 years
  • Looking for a ‘invest and forget’ approach. Expecting in-line market returns
  • Primarily looking to grow your investments over building passive income stream

The ‘best’ ETFs in this case for you would mean that they’re reliable (tracks, replicates an index) and cost-effective for you to optimise returns in the long-run.

What to consider when choosing an ETF to buy and hold?

Expense Ratio

Compared to unit trusts, ETFs are much more cost-effective when it comes to management fees (a.k.a. expense ratios). But not every ETF expense ratio is created equal. Some funds, such as VOO can be as low as 0.03% per year, while others such as ARKK run up to 0.75%. The fee eats into your returns. If you’re investing for the long haul, those fees could have been compounded into profits.

Dividend Payout vs Reinvesting

Some ETFs offer automatic dividend reinvestment. Meaning dividends received are invested back into the fund, allowing you to grow and compound your wealth. While some funds payout dividends in cash. It is important to keep this in mind when choosing your ideal ETF to pool your investment into.

What are the cost and tax differences in VOO, SPY, CSPX and QQQ?

Each ETF has its own pros and cons. For instance, you may have to bear slightly higher fees if you want to reinvest and take advantage of tax efficiencies. But if you’re happy with getting cash payouts with some withholding tax, a lower cost option could be more suitable for you.

TickerExpense RatioPayout or Reinvest?Tax ImplicationsExchange
VOO0.03%Payout-30% WHT on dividendsNYSE
SPY0.09%Payout-30% WHT on dividendsNYSE
QQQ0.20%Reinvest-30% WHT on dividendsNASDAQ
Source: Syfe Research 

Another dimension to take into consideration is yield. When dividend yield is low, your withholding tax impact is limited. Assuming you invest $10,000 into each of these funds, the tax impact can range from $0 to almost $50 per year. Choosing a lower yielding fund for growth investing will help you to save long term.

Ticker% YTD Return (2023)% Dividend YieldAnnual Yield (Estimated)Withholding Tax Impact
Source: Syfe Research

Other costs to consider when you DCA long-term

Besides fund-level fees, there are other costs involved in investing long-term to consider such as commission or platform fees each time you place a trade. If you plan to DCA every month at $1,000 for a year, here’s how much it would cost you for different options.

TickerFund-level Fee (Expense)Commission Fee (Syfe Trade)Commission Fee (AU Brokers)
VOO$1.95$1.49$4.90 – 9.50
SPY$5.85$1.49$4.90 – 9.50
QQQ$13.00$1.49$4.90 – 9.50
Source: Syfe Research 

Syfe enables you to start investing at US$1.49 a trade, no matter the order value. Some brokers may claim to be ‘commission free’ but there may be a platform fee added per transaction. For CSPX’s case, the transaction cost is very expensive because it’s listed on the London Stock Exchange and might not be accessible for investors with smaller sums to invest.

Syfe also offers recurring buys and portfolio transfers with standing instructions from your bank. This way, you can DCA conveniently with no additional costs.

Choosing what’s best for you

Everybody’s long-term needs and preferences are different. So if you enjoy building your portfolio from scratch, make sure you consider your options holistically. If DIY isn’t your thing, Syfe has other solutions such as our Smart Baskets. Smart Baskets help you automatically diversify your portfolio and optimise it based on your investment needs.