What Is an ETF?
A Simple Guide for Everyday Investors
If you’ve ever looked into investing—even just casually—you’ve probably come across the term ETF. But what exactly is an ETF, and is it something you should consider?
In this post, we’ll break it down in plain language, explain how it works, and help you understand if it could play a role in your investment strategy.
ETF stands for “Exchange-Traded Fund”
At its core, an ETF is an investment fund that holds a collection of assets—like shares, bonds, or commodities—but trades on the stock exchange, just like a regular share.
When you buy an ETF, you’re buying into a basket of investments in one go. This could be a group of companies in a particular sector (like technology), a country (like Australia or the US), or a whole market index (like the ASX 200).
How Does an ETF Work?
Here’s a simple example:
Let’s say you want to invest in the top 200 companies on the Australian Stock Exchange. Instead of buying shares in each of those 200 companies individually (which would take time and money), you could buy one ETF that tracks the ASX 200 index.
That ETF will automatically include those companies in the correct proportions—and will adjust as the index changes.
You can buy and sell ETFs through your share trading platform, just like you would with regular company shares.
Why Do People Invest in ETFs?
ETFs have become popular because they offer:
Diversification – You’re spreading your risk across many assets, not just one
Lower fees – Most ETFs have lower management costs compared to actively managed funds
Flexibility – You can buy and sell during market hours
Transparency – You can usually see exactly what’s in the ETF
Simplicity – They’re an easy way to invest in broad markets, sectors, or themes
Are There Different Types of ETFs?
Yes. Some common types include:
Index ETFs – Track a market index like the ASX 200 or S&P 500
Sector ETFs – Focus on specific industries like health care, tech, or mining
Bond ETFs – Invest in government or corporate bonds
Thematic ETFs – Follow trends like clean energy, cybersecurity, or robotics
International ETFs – Give you access to overseas markets in a single trade
Each type comes with its own risks and benefits, and it’s important to understand what you’re investing in before making a decision.
What Are the Risks?
Like all investments, ETFs carry risk. Some things to consider:
Market risk – If the market or sector the ETF tracks goes down, your investment could fall in value
Liquidity – Some ETFs don’t trade as frequently as others, which can make buying or selling slower or more expensive
Complexity – Some ETFs (especially actively managed or synthetic ones) can be harder to understand and may not suit beginner investors
Currency risk – For international ETFs, foreign exchange movements can affect your returns
It’s important to do your research—or get advice—before investing.
Can ETFs Be Held in Super?
Yes, ETFs can be part of your self-managed super fund (SMSF) or invested through superannuation wrap accounts, depending on your provider. Many Australians use ETFs as a low-cost, long-term option within their retirement portfolio.
Should You Invest in ETFs?
That depends on your goals, timeframe, and how comfortable you are with investment risk. ETFs can be a useful part of a diversified portfolio, but they’re not a one-size-fits-all solution.
At Just Advice Financial Planning, we help you work out what makes sense based on your personal situation—not just what’s trending in the market.
Final Thoughts
An ETF can be a smart way to invest in a wide range of companies or sectors without needing to pick individual stocks. But, like any investment, it’s important to understand the basics and how it fits into your overall plan.
Want to know if ETFs are right for you?
We’re here to help you understand your investment options clearly, without the jargon or pressure.
Book a free chat and get guidance that makes sense for your future.