If you’re looking to start investing in 2025, here’s an option that will serve you much better than buying Commonwealth Bank of Australia (ASX:CBA) or BHP Group Ltd (ASX:BHP) shares.
Exchange Traded Funds (ETFs)
Exchange Traded Funds (better known as ETFs) have become a go-to option for Australian investors seeking a simple, diversified, and cost-effective way to grow their wealth. So, what is an ETF?
Think of an ETF as the gift basket you get for Christmas from colleagues who don’t really know you. They’re not going to risk buying one item you might not like, so instead they buy you a basket of chocolates, wine (if they’re good colleagues), and gingerbread. You’re sure to like something!
An ETF does the same thing for shares. As an investor, it’s extremely difficult (or impossible) to tell which company is going to perform well over the next few years. If you put all your money into one company, you’re taking on a huge amount of risk. What if they lose a big contract? Or don’t manage their debt levels?
ETFs allow you to invest in a basket of companies, rather than a single company, with one purchase. They’re traded on the ASX like any regular company, so you can buy them exactly the same way you would buy CBA or BHP shares. But, instead of just getting CBA, or BHP, you’re getting CBA and BHP and dozens or even hundreds of other companies.
So, why do we think ETFs are the easiest way to start investing?
Simplicity
When you’re starting out with something new, you want to keep it as simple as possible. ETFs like the Vanguard Australian Shares Index ETF (ASX:VAS) or the iShares S&P 500 ETF (ASX:IVV) give you a great foundation with a single purchase.
Diversification
And the benefit of being invested in 500 companies in a single purchase? Diversification!
By investing in an ETF, you can spread your investment across multiple sectors, industries, and even regions. This reduces the risk of relying too heavily on the performance of a single company or sector. Especially if you’re starting with a small amount, like $1,000, an ETF is the best way to diversify quickly and cheaply.
Cost-effective
Speaking of cheaply, another reason to love ETFs is that they’re generally very cost-effective. You do pay an annual management fee for the privilege of having a diversified investment, but this fee is normally a fraction of what you’d pay with a traditional managed fund.
Those two ETFs I mentioned, VAS and IVV, only charge 0.07% and 0.04% per year respectively. That’s $70 or $40 on a $10,000 investment!
And they’re not just for beginners
You don’t have to start with ETFs, and then move on to more ‘advanced’ investing. You can be a great investor with ETFs as the core or even the entirety of your portfolio.
Owen and Kate, the hosts of Rask’s Australian Finance Podcast, recently sat down to share 10 lessons they’ve learnt from 10 years of ETF investing:
So, where should you get started?
There are any number of ETFs you could choose to start your investing journey in 2025.
Generally, it’s good to start with a broad-market equity ETF like VAS or IVV. Plenty of investors use these two ETFs as the core of their portfolio because they give you broad and diversified exposure to the Australian and US share markets.
Other similar ETFs include the Betashares Australia 200 ETF (ASX:A200) or the SPDR S&P 500 ETF Trust (ASX:SPY).
If you want even more diversification, there are diversified ETFs that hold other ETFs within them. A popular example would be the Vanguard Diversified High Growth Index ETF (ASX: VDHG).
Any of these ETFs would make a great choice for your first investment.
Taking the next step
While buying an ETF is a simple and efficient way to start investing, there are other factors to consider.
For example, how could you combine ETFs to get a diversified portfolio? How can you tailor the portfolio to suit your investing needs (i.e. is it geared toward growth or income)?
If you want to take that next step, check out Rask Invest, where you can put your wealth on autopilot through one of our three ready-made ETF funds, managed by our expert team. The portfolios are designed for different life stages/investment strategies so you can pick the one most suited to you.
You can also book here for a free chat with our Head of Funds Management, Mitchell Sneddon, to talk through the options.
