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All Ords. What is the All Ords? What is the ASX?

What is the All Ords?
What is the ASX?
How does the ASX make money?
How can I make money using the All Ords?

The All Ordinaries (All Ords) is a stock market index that represents the overall performance of the Australian stock market. It includes the largest 500 companies listed on the Australian Securities Exchange (ASX) by market capitalisation. Essentially, it provides a broad snapshot of how the Australian stock market is performing overall. Investors and analysts often use the All Ords as a benchmark to gauge the general trend and health of the Australian equities market. It’s important to note that while the All Ords is a key indicator, individual stocks or sector-specific indices may perform differently.

The All Ordinaries index itself does not make money directly, as it is a measure of the performance of a basket of stocks rather than a tradable asset. However, it serves several important functions for investors and the financial markets:

Investors use the All Ordinaries as a benchmark to evaluate their own portfolio performance against the broader market. Fund managers, for example, compare their fund’s returns to those of the All Ords to assess how well they are performing relative to the market.

Financial institutions create investment products based on the All Ordinaries. For instance, there are index funds and exchange-traded funds (ETFs) that track the performance of the All Ords. Investors can buy shares in these funds, which replicate the composition and performance of the index.

The movement of the All Ordinaries provides insights into market trends and sentiment. For instance, if the index rises, it typically indicates that the overall market is performing well, while a decline might suggest broader market weakness.

Now, regarding the ASX (Australian Securities Exchange) as an example:

  • The ASX itself makes money primarily through fees and services it provides to listed companies, brokers, and traders. These include listing fees, trading fees, and fees for data services.

When you think of the exchange like this it’s clear that there is a strong monetary reason for the exchange to continually run stock prices to create FOMO to promote activity and therefore revenue.

  • The ASX also offers products related to indices like the All Ordinaries. For example, they facilitate the trading of ETFs and other derivatives that are linked to various indices including the All Ordinaries. They earn revenue from these transactions.
  • Additionally, the ASX provides clearing and settlement services, ensuring that trades are processed efficiently and securely. They charge fees for these services, contributing to their revenue stream.

While the All Ordinaries index doesn’t generate money itself, it plays a crucial role in financial markets by guiding investment decisions, serving as a benchmark, and facilitating the creation of investment products. The ASX, on the other hand, earns revenue through various services and products related to indices like the All Ordinaries.

An important point to note with investing directly in shares is to diversify. The benefit of an ETF over purchasing direct shares is that there is often somewhere between 60 to 250 stocks in one managed fund or ETF, around half is these stocks will not be around in 20 years but your investment manager will continue to monitor and diversify to ensure that you can set and forget. Over the past 75 years, in excess of 87% of companies in S&P 500 have been taken over, gone broke or been delisted. ETFs have also evolved in recent times to allow more granular involvement from investors. Sectors like AI, crypto, energy, currency, even fully franked funds are available, pretty much any sector you can think of will have an ETF option.

If you would like to talk to a Hudson adviser about some of the different ETFs or find out about our high returning managed accounts, please email your name and number to helpdesk@hudsonfp.com.au or call 1800 804 296.

 

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