As many of us begin to adjust our lives to a COVID normal Australia, some of us are emerging from the lockdown experience armed with new skills or hobbies picked up since the pandemic impact hit in the first quarter of the year.

For some, as ASIC observed in a market research report in May, the lockdowns presented an opportunity to dip their toes into the Australian sharemarket. This was reflected by both retail broker activity, and also in the ETF market, which recorded its third strongest quarter of inflows at $3.8 billion in Q2 2020 despite the pandemic-led market volatility between March and May.

The momentum built in the third quarter of 2020 with $4.9 billion in new inflows easily outpacing Q2's inflow. The significant shift in investor behaviour was the A$1.9b flowing into international equities that reversed the home-preference trend in the previous quarter. The data from Q3 also showed that investors had reverted to shoring up more conservative assets in their portfolios particularly in the local bond market, resulting in A$671m in inflows, A$390m more than international bonds, and triple the flow seen in Q2.

Many of us will be happy to have the end to 2020 now in sight but just as online shopping and services like Netflix and Zoom have benefited from the pandemic disruption, 2020 looks to be a strong year for the Australian ETF industry, attracting $15.4 billion as at the end of October, just $100 million short of the record set last year, growing total assets under management to $73.5 billion. All of this investment into ETFs amid the ongoing global economic and geopolitical uncertainty suggests that investors, both new and seasoned, continue to leverage the many benefits of investing in ETFs, such as a means to easily access a diversified portfolio of assets at low cost.

Rocky markets this year also demonstrated the resilience of exchange traded funds. As liquidity contracted at the individual shares level during bouts of volatility, ETFs conversely acted as "shock absorbers" for the market, by remaining fully functioning and liquid.

Another particular feature of 2020 were surges observed in retail trading activity of ETFs, particularly among those who are either new to investing or of a younger demographic. Lower living costs during lock down, more spare time and greater access to low cost trading apps, were potential factors that may have spurred on this activity.

While buying and selling ETFs is straightforward through an online broker, caution is strongly advised – especially for new investors – that trying to time the market is much harder and more likely to lead to losses. Day trading and watching your portfolio value rise and fall by the minute can be addictive and lead to impulsive trading decisions. In some ways, it's not dissimilar to watching and betting on a sports game, with day trading perhaps closer in costs and outcomes to gambling than it is to investing.

As ASIC noted, retail investors are more likely to lose than gain when trying to time short-term market movements.

2020 presented a number of reminders that volatility is a fact of life in markets and an extremely difficult concept to capitalise on. That's why executing a disciplined investing strategy that takes into account your goals, risk tolerance and staying disciplined, particularly if you're investing for the long term, will help you navigate ongoing volatility and improve your overall returns in the long term.

That is the difference between being investing and speculating.

Vanguard Australia