When building a portfolio on the Australian Securities Exchange (ASX), one of the primary decisions you will face is choosing between Exchange Traded Funds (ETFs) and individual company shares. Both options offer a way to grow your wealth, but they cater to very different investor profiles.
What is an ASX ETF?
An Exchange Traded Fund (ETF) is a pool of investments that tracks an underlying index or asset class. Buying a single unit in a broad-market ASX ETF (such as one tracking the ASX 200) instantly gives you exposure to hundreds of Australian companies at once.
What are Individual Shares?
Buying individual shares means purchasing direct equity in a single company listed on the ASX. Your investment returns depend entirely on that specific business’s earnings, leadership, and overall stock performance.
Diversification and Risk
ETFs offer instant diversification, spreading your capital across multiple businesses and sectors to buffer against single-stock downturns. Individual shares carry higher single-stock risk. If the company faces bad news or underperforms, your portfolio takes a direct hit.
Management Costs and Fees
Individual shares carry no recurring management fees. You only pay brokerage when buying or selling. ETFs incur a small, built-in annual expense ratio (Management Expense Ratio or MER) deducted directly from the fund’s value, though broad ASX index ETFs typically keep this fee very low.
Growth Potential and Control
Individual shares give you full control over your portfolio and offer uncapped upside potential if a single company performs exceptionally well. ETFs trade that individual stock-picking potential for steady market-average returns, smoothing out the high highs and low lows.
Which Option Suits You Best?
If you prefer a low-maintenance, hands-off approach with broad exposure, ASX ETFs are ideal. If you enjoy in-depth research, want voting rights, and are aiming to beat market benchmarks, individual shares fit better. Many Australian investors ultimately use ETFs for their core portfolio foundation and individual shares as satellite holdings.