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What Is an ETF? A Beginner's Guide for Australians

1 Aug 2024
5 min read

Exchange-traded funds are one of the simplest ways to start investing. Here's how they work and why they're popular with Australian investors.


What Is an ETF?

An Exchange-Traded Fund (ETF) is a type of investment that holds a basket of assets — like shares, bonds, or property — and trades on the stock exchange just like a regular share.

Think of it like a pre-made meal: instead of picking individual ingredients (shares), someone has already combined them into a balanced dish (the ETF) for you.

Why ETFs Are Popular

  • Instant diversification - One purchase spreads your money across dozens or hundreds of companies

  • Low fees - Most Australian ETFs charge 0.03% to 0.50% per year, far less than managed funds

  • Easy to buy - Purchase through any online broker, just like buying a share

  • Transparent - You can see exactly what the ETF holds at any time

    • Common Types of ETFs in Australia

    Broad Market ETFs


    These track the whole Australian or global share market:
  • ASX 200 ETFs - Track the 200 largest companies on the ASX

  • Global ETFs - Track markets worldwide (US, Europe, Asia)

    • Bond ETFs


    Lower risk, steady returns. Good for the conservative portion of your portfolio.

    Property ETFs


    Invest in Australian and global real estate without buying a property.

    How Much Does It Cost to Start?

    You can buy a single unit of most ETFs for under $100. Some brokers like Pearler and Stake let you set up automatic purchases, so you can invest a fixed amount every pay cycle without thinking about it.

    Example: $200/Month Into an ASX 200 ETF

    If you invested $200/month into a broad Australian ETF returning an average of 7% per year:

  • After 5 years: ~$14,200 (you contributed $12,000)

  • After 10 years: ~$34,600 (you contributed $24,000)

  • After 20 years: ~$104,000 (you contributed $48,000)

  • After 30 years: ~$243,000 (you contributed $72,000)

    • That extra $171,000 is compound interest doing the heavy lifting.

    Getting Started

  • Choose a broker - Look for low fees and automatic investing features

  • Pick a broad market ETF - Start simple with an ASX 200 or global ETF

  • Set up a regular investment - Even $50/month adds up over time

  • Don't check it every day - Long-term investing works best when you set and forget