ETFs have gone from a niche product to one of the most popular ways Australians invest. But if you’re new, the jargon can be off-putting. Here’s everything you need, in three parts: what ETFs are, why so many people are using them, and how to get started.
Prefer to watch? Each part has a short video. Tap a topic to jump straight to it.
The what: what are ETFs?
An ETF (exchange traded fund) is a fund that holds a basket of investments, such as shares, bonds or gold, and trades on a stock exchange like a single share. Buy one unit and you own a small slice of everything inside it.
For example, an ASX 200 ETF such as A200 or VAS holds Australia’s 200 largest companies. One trade gives you a piece of CBA, BHP, CSL, Woolworths and 196 others.
How an ETF works
- It tracks something. Most ETFs follow an index (like the ASX 200 or S&P 500), so you get the market’s return less a small fee. Active ETFs have a manager picking investments instead.
- Market makers keep the price fair. They buy and sell all day so the ETF’s price stays close to the value of what it holds.
- Your money is held separately. The fund’s assets are held by a custodian, not mixed in with the provider’s own money.
- You may receive distributions. Dividends from the holdings are usually paid out to you every quarter or half-year, or can be reinvested.
Want to see inside the machine? I asked David Tuckwell (CIO, ETF Shares) how ETFs are made and priced:
The main types of ETFs
- Diversified (all-in-one): a whole portfolio in one fund, e.g. DHHF, VDHG, VDAL.
- Market index: one market, e.g. Australia (A200, VAS), the US (IVV) or the world (BGBL, VGS).
- Sector and theme: technology, healthcare, cybersecurity, AI, uranium.
- Commodity: gold, silver, oil or a basket of commodities.
- Income: higher dividends or covered calls.
- Bonds and cash: fixed interest or cash for stability.
Browse them by theme in our ETF lists, or search all 500+ in the full ASX ETF list.
ETFs vs shares vs managed funds
| ETFs | INDIVIDUAL SHARES | MANAGED FUNDS | |
|---|---|---|---|
| Diversification | High, in one trade | Low, unless you buy many | High |
| Typical cost | From under 0.1% a year | Brokerage only | Often 0.5–2% a year |
| How you buy | On the ASX, any broker | On the ASX, any broker | Application form or platform |
| See the holdings | Usually daily | Yes | Often quarterly |
| Effort | Low | High: research each company | Low |
The why: why are people using ETFs?
Australians had about $388 billion in ETFs by September 2026, up from about $57 billion in 2019. In September alone, a net $6.9 billion flowed in.
Here’s what’s driving it:
- They’re cheap. Broad index ETFs cost from under 0.1% a year. Over decades, lower fees can add up to tens of thousands of dollars (see below).
- Instant diversification. Spread your money across hundreds or thousands of companies, so one bad company can’t sink your portfolio.
- They’re simple. Buy and sell on the ASX like a share, through any online broker, with no paperwork or lock-in.
- They’re transparent. You can usually see every holding, every day.
- Access to the world. US tech, Indian shares, gold or cybersecurity, all from an Australian brokerage account.
- Hard to beat. Over the long term, most active fund managers struggle to beat their index after fees, so many investors simply buy the index.
Who’s using them
- Younger investors starting with small amounts through low-cost brokers and apps.
- Busy professionals who want market returns without researching individual companies.
- SMSF trustees and retirees looking for diversified, low-cost building blocks and income.
- Financial advisers, who increasingly build client portfolios from ETFs.
Where is the money going? Over the past 12 months, the biggest inflows went to broad funds: VAS (about $4.3bn), VGS ($4.1bn), A200 ($2.7bn) and BGBL ($2.2bn). See more in our best ETFs in Australia.
The how: getting started with ETFs
- Know your goal and timeframe. Shares are best for money you won’t need for at least five years. Keep an emergency fund in cash first.
- Open a broker account. Choose any online broker or investing app. Your ETFs are held in your name (look for “CHESS sponsored”), and compare brokerage costs.
- Choose a core ETF. Many people start with one diversified ETF as the foundation, typically 70–100% of their portfolio. Our weekly core ETF check-up rates the main options.
- Decide how much and how often. Investing a set amount regularly (dollar-cost averaging) means market dips work in your favour. A simple guide: aim to invest at least 2% of your portfolio each month.
- Place your first order. Search the ETF code, use a limit order at or near the current price, and avoid the first 30 minutes after the market opens, when prices can be less efficient.
- Add satellites later, carefully. Once your core is in place, you can use a smaller slice (10–30%) for themes or regions, bought at clear buy points with a stop loss. Read about core and satellite investing and when to buy an ETF.
Beginner mistakes to avoid
- Owning too many overlapping ETFs. Five global ETFs that all hold Apple and Microsoft isn’t extra diversification.
- Chasing last year’s top performer. It’s often the most stretched. Wait for a base to form.
- Buying a theme because it sounds logical. A good story isn’t the same as a good investment.
- No stop loss on satellites. Small losses are fine; big ones are hard to recover from.
- Panic-selling the core. It’s designed to be held through the ups and downs.
How many ETFs is too many? Watch the $36,000 difference:
Frequently asked questions
What is an ETF in simple terms?
An ETF is a basket of investments, such as shares, that you buy and sell on the stock exchange like a single share. One trade gives you a small slice of everything the fund holds.
Why are ETFs so popular in Australia?
Low fees, instant diversification and the ease of buying them through any online broker. Money in Australian ETFs grew from about $57 billion in 2019 to $388 billion in September 2026.
How much do I need to start investing in ETFs?
Most brokers let you buy an ETF with a few hundred dollars. Many people start small and add a set amount each month.
What is the best ETF for beginners?
Many beginners start with one diversified all-in-one ETF as their core, because it spreads money across Australian and global shares in a single trade. The right choice depends on your goals, timeframe and risk tolerance.
Can you lose money in ETFs?
Yes. ETFs rise and fall with the markets they track. Diversified ETFs reduce single-company risk but not market risk, and themed or geared ETFs can be much more volatile.
General information only. This article doesn’t consider your objectives, financial situation or needs. Consider whether it’s appropriate for you and read the PDS and TMD before investing. Examples are illustrations, not recommendations. Past performance is not a reliable indicator of future performance.