In brief
- The Australian exchange traded fund (ETF) market saw a record number of listings in the last financial year.
- It comes as ETFs become an increasingly popular investment tool for Australians, including many young people.
More Australians are turning to exchange traded funds (ETFs) to build wealth, with the local market now worth more than $350 billion following a record year of new fund listings.
For Paul Webster, a 30-year-old living in Sydney, it's a way to save for a home deposit, set up his retirement and invest in a range of assets without having to pick individual shares.
"It's just one of those things of, I guess, knowing that property is becoming more unaffordable," he told SBS News.
"But then also just putting money aside for retirement. The longer that money is in market, then the more it compounds."
ETFs have become increasingly popular because they allow investors to buy a stake in a broad range of companies, industries or markets through a single investment.
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They can offer a simple, low-cost way to access diversified investments that are relatively easy to trade. Younger Australians are helping to drive the trend, with nearly one in five gen Z investors now owning ETFs.
Setting an annual record, 72 ETFs were listed on the Australian Securities Exchange (ASX) in the 2026 financial year, bringing the total number available to investors to more than 450.
Trading activity in ETFs increased by 26 per cent, outpacing growth in trading across the broader share market.
The ASX expects the number of ETFs available to Australian investors to grow to 500 by July next year.
What is an ETF?
ETFs are investment funds that trade on the share market like stocks.
Rather than buying shares in individual companies one by one, an ETF allows investors to buy a publicly traded single fund that can hold dozens or even hundreds of investments.
"It's best for investors to think of an ETF as like a basket of investments that they can buy in a single trade," Rory Cunningham, senior manager of investment products at ASX, tells SBS' On the Money podcast.
"Instead of buying 50 shares, with one ETF, they can give you exposure to all 50 of those shares."
ETFs can hold Australian and international shares, bonds, commodities and other asset classes.
A global trend
ETF investing has become increasingly popular around the world, and Australia is no exception.
Investors added more than $50 billion to the Australian ETF market in the last financial year.
"Across Australia, there's more than 2 million investors that now hold ETFs, and they're a combination of different types of investors," Cunningham says.
"Younger investors, older investors, self-managed super funds are big adopters of ETFs as well."
The US is the largest ETF market globally, with more than 4,000 ETFs listed.
Why are more Australians turning to ETF investing?
Casey Fung, a 37-year-old living in regional NSW, started investing in shares and ETFs in 2020, after the share market plunged due to the COVID-19 pandemic.
"I remember looking back on it a couple of years later and kind of going 'Oh, I think actually the ETFs made more money over time than trying to pick the individual shares,'" he told SBS News.
Now, he generally opts for ETFs over individual shares. He prefers to invest rather than keep his money in a savings account, where he says the interest he receives just keeps pace with inflation.
Jerry Parwada, a professor of finance at the University of New South Wales Business School, says there has been a generational shift in the way people approach savings.
"For the older generations, arguably, when they thought of saving, the first thing to come to mind was a savings account," he tells SBS News.
"Now that's a thing of the past."
For young people, ETFs can represent a way to invest $100 here and there, "at low cost over a long period of time", he says.
But why wasn't the ETF's predecessor just as popular?
The concept of ETFs — as a basket of investments — isn't new. Long before they came on the scene, investors used managed funds, or professionally managed portfolios that pool investors' money.
Unlike ETFs, managed funds aren't traded on the stock market, are generally less flexible, and can be harder for investors to understand.
Choosing the right managed fund often meant relying on personal research or paying for financial advice. Over time, many investors came to question whether these managers delivered returns that justified higher fees, Parwada says.
So, investors began looking towards a simpler approach known as index investing, by buying into a diversified basket of stocks that passively tracks a market index, rather than trying to beat it.
That's how the ETF was born, with lower fees and easier access, Parwada said.
"So with ETFs you can invest as low as $100, whereas with managed funds, there are some funds [which require] a minimum investment amount like $5,000 to $15,000. That's not something that the average investor will easily come up with," he said.
Property market fatigue
In the meantime, Australians are finding it harder to get into property, says Danielle Kent, a senior lecturer of finance at the University of Sydney who specialises in behavioural finance.
She tells SBS News many aspiring homeowners in Australia now need to save for five to ten years for a deposit, when previous generations were more likely to be able to do so in one or two.
"That time horizon for saving for a deposit has just grown and grown and grown the last decade or so."
She says that, with the rising cost of housing, simply leaving savings in a bank account is less likely to help people reach long-term financial goals.
"You want to park it somewhere where it's going to grow over time, otherwise inflation will just eat it away," she says.
She says ETFs can offer investors the potential for higher returns over the medium to long term, while still allowing them to convert their investment back into cash relatively quickly if needed.
What are some of the risks?
As with any investment, ETFs come with risks.
While ETFs can spread risk across a range of investments, they are still exposed to market risk and volatility and do not protect investors from a market downturn.
If the underlying market falls, such as Australian shares or US markets, then the ETF tracking those markets will fall too.
As a result, ETFs are generally considered better suited to medium and long-term investing than a short term strategy.
Cunningham adds that not all ETFs are the same, and advises investors to "look under the hood and see what the ETF owns".
"Some track broad markets, while others focus on a single sector theme or strategy, which may be more volatile," he says.
"So it's really important for investors to know what they own."
Disclaimer: The information in this article is general in nature and is not intended as financial advice. You should consult with a licensed professional to make the decisions that are right for you.
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