I’ve been investing in Australian ETFs for about 20 years, and there are a few things I wish I’d understood much earlier. You can buy a perfectly good ETF and still make a mess of it: hold it for the wrong reason, double up on what you already own, or hang on long after the opportunity has passed.
Here are the lessons I share with my clients as a financial adviser, so they don’t make the same mistakes. Tap any button to jump to that part of the video.
Treat cash as a position and let a system tell you when to take risk. Buy breakouts from a base, set your stop-loss before you buy, look under the hood of every ETF, judge investments on total return rather than yield, watch your currency exposure, and bring it together with a core and satellite structure.
Lesson 1: Cash is a position
Ever had money sitting in your account and felt you should be investing it? An ETF takes off, everyone’s talking about it, and waiting starts to feel like a mistake. But having money available doesn’t mean there’s something worth buying every day.
Each week at ETF Adviser we use our Market Health-O-Meter, which tracks 17 ETFs across Australian sectors, global regions and investment themes against their 10, 20, 50 and 200-day moving averages.
Sometimes that means waiting. On 2 October 2026, around 86% of our Best Ideas Model Portfolio was in AAA, a cash ETF. That’s an active portfolio, not a recommendation for everyone to move to cash. Waiting has a cost too: inflation eats into your money and markets can rise without you. But forcing trades when conditions aren’t right can be worse.
Lesson 2: Manage entries and exits with base and trend
There’s always a convincing story: AI, copper, clean energy. A good story doesn’t mean it’s a good time to buy. That’s why I use the base and trend method.
- A base forms when an ETF moves sideways, sometimes for months, as buyers and sellers settle into a range.
- We look for the range to tighten, a higher low to form and a clear breakout level, the pivot.
- We wait for price to break above it with improving strength and, where useful, stronger volume. The 20, 50 and 200-day averages help judge whether the trend is improving.
- After a breakout, we want higher highs and higher lows.
With ETFs, on-screen volume isn’t the whole picture, so I also consider the underlying market and the bid-ask spread. And an ETF that has simply fallen isn’t necessarily forming a base, while one that has surged well above its base may already be too late.
Take XMET, which holds companies involved in critical minerals. Zoom out on the chart and you can see the long base before the stronger move. Here’s how the Model Portfolio (started 1 June 2025) managed it:
It wasn’t one prediction held forever. We waited, entered, managed the position and reassessed. As an uptrend develops, I watch whether the higher lows hold as support. I might trim an extended move, but I don’t sell everything just because I’m showing a profit.
Lesson 3: Use a stop-loss
Before we enter an active position, we already know where we’ll get out if we’re wrong. I look for a key low or support area the ETF should hold if the setup is working, and place the stop below it, as tight as the setup sensibly allows: ideally around 7% or less from entry. If the nearest sensible support is too far away, I don’t force an arbitrary stop. I wait for a better entry or move on.
That 7% is the move in the position, not how much of the whole portfolio we’re willing to lose. Position size matters too.
A trade that didn’t work: we bought ATEC, the Australian technology ETF, on 14 August 2026 at $24.14. It broke below our support level, so we sold on 1 September at $22.78, a loss of about 5.6% before brokerage. It then fell further. Could it recover? Absolutely. But with 500+ ETFs available, there’s no reason to get attached to one that isn’t working.
A stop doesn’t guarantee your exact exit price, especially if the market gaps down. But the principle stands: cut losses quickly and give your winners room to run.
Lesson 4: Resist home bias, but be aware of currency
Australians know the banks and the miners, and we like the dividends and franking credits. But Australia is only about 2% of the global share market, and it’s heavily concentrated in financials and resources. International ETFs give you access to businesses and industries that aren’t well represented on the ASX. In the year to September 2026, none of the 10 best-performing ASX-listed ETFs focused on Australian shares; they were all international or commodity exposures. (See the latest rankings on our monthly ETF performance page.)
But investing overseas adds another factor: currency.
Both track the S&P 500. The hedged version finished about 13 points ahead, largely because the Australian dollar recovered against the US dollar. Same market, different currency treatment.
- A falling Aussie dollar helps unhedged US investments; a rising one works against them.
- If your US investment rises 10% but the Aussie dollar also rises 10% against the US dollar, the two roughly cancel out before costs and tax.
- From its highs around 2011 into the 2025 tariff sell-off, the Aussie dollar’s broad direction was down, which helped unhedged holdings. It has since recovered, and a sustained commodity boom could strengthen it further.
That’s why I consider currency-hedged ETFs for part of an international portfolio. Hedging has costs and isn’t perfect, but it’s better to understand your currency exposure than discover it after your returns disappoint. Unsure where your portfolio has hidden risks? Get a free portfolio review.
Lesson 5: Know the limitations of ETFs
An ETF holding hundreds of companies doesn’t spread your money evenly. Most broad indexes are weighted by market capitalisation, so bigger companies get bigger allocations. The size of the US market means it dominates many global indexes, and within them the biggest US companies have a huge influence.
Own a global ETF, an S&P 500 ETF and a Nasdaq-100 ETF and you could hold Apple, Microsoft and Nvidia three times over. Fine if it’s intentional, but different ETFs don’t automatically mean diversification. (More on this in How many ETFs should you own?)
What I check: the top 10 holdings, country and sector weights, what’s actually driving performance, how it combines with the rest of the portfolio, fees, index rules and whether the fund uses gearing.
The name isn’t enough either. Physical gold and gold miners are different investments: miners have operating costs, debt and business risk, so they won’t simply track the gold price. Look under the hood and know what you’re actually buying.
Lesson 6: Think total return before dividends
A high yield can look attractive, especially if you invest for income, but distributions aren’t free money. If an ETF is worth $10 and pays a 50c distribution, all else equal its price falls to about $9.50 when it goes ex-distribution. You still have $10 in total; some of it has just moved into cash.
That’s a 7% loss despite an 8% payout. Income and franking credits matter, but a large payment doesn’t make an investment successful if the capital keeps shrinking. Assess the whole return first, then decide whether the income suits what you need.
Lesson 7: Core and satellite
Core and satellite is the foundation of our approach. The core is the long-term foundation: broad Australian and international ETFs, with bonds, cash or other defensive assets depending on your circumstances. It could be a single diversified ETF. The satellites are smaller allocations to opportunities that deserve extra exposure or aren’t well represented in the core. For example, $80,000 in the core and $20,000 in satellites in a $100,000 portfolio; the right split depends on the investor.
Our targets are 8% a year after tax and inflation for the core and 10% for the satellites. They’re ambitious targets, not guarantees.
Why use satellites at all? A diversified core always has gaps. It usually won’t hold physical gold or Bitcoin, has only small weights in mining and energy, and many global ETFs lean heavily on US tech after its long run. The next cycle could favour something else.
Other opportunities to assess include global energy (FUEL, around 40% in the year to September 2026) and Bitcoin, which has delivered strong long-term gains but with much higher volatility, so position sizing matters. These are opportunities to assess, not a list to buy.
The key is a repeatable process: assess market health, identify opportunities, check the ETF’s holdings, wait for a suitable entry and set your stop before buying. If conditions aren’t right, hold cash. Meanwhile the core keeps doing its long-term job.
Watch the full video on YouTube →
General information only, not a recommendation to buy or sell any ETF. ETFs and Model Portfolio trades are shown to illustrate a process; they include both gains and losses and are not a guide to future results. Returns quoted are past performance for the periods shown and are not a reliable indicator of future performance. Targets are not guarantees. Consider your objectives, financial situation and needs, and read the PDS, before investing.
Frequently asked questions
What does “cash is a position” mean?
It means holding cash can be a deliberate choice, not a failure to invest. Rather than buying just because money is available, you wait until market conditions and a suitable entry justify taking risk, while remembering that waiting has costs such as inflation.
Where should I put a stop-loss on an ETF?
One approach is to place it just below a key low or support area the ETF should hold if the setup is working, ideally around 7% or less from entry. If sensible support is further away, wait for a better entry rather than forcing an arbitrary stop. Stops don’t guarantee your exit price if the market gaps.
Should I buy hedged or unhedged international ETFs?
It depends on your view and circumstances. Unhedged ETFs benefit when the Australian dollar falls and suffer when it rises. Over 18 months to September 2026, hedged IHVV returned about 37% vs about 24% for unhedged IVV, largely because the Aussie dollar rose. Many investors hold a mix.
Are high-dividend ETFs better for income?
Not necessarily. Distributions reduce the ETF’s price, so judge total return (distributions plus change in value). An ETF paying 8% that falls 15% in value leaves you 7% worse off overall.