By Paul Feeney
If you're trying to figure out how to invest in Australia, two of the most common options you'll come across are ETFs and individual shares. Both trade on the ASX. Both give you exposure to the share market. And both can form part of a long-term investment strategy.
But the difference between ETFs and shares is significant — and understanding it is one of the most useful things you can do before deciding where to put your money.
What's the core difference between ETFs and shares?
When you buy shares in a company — say, Macquarie or Woolworths — you own a small piece of that specific business. If the company performs well, your shares may rise in value and pay dividends. If it struggles, they may fall. Your return is tied to that one company.
When you buy an ETF, you're buying a single investment that holds many companies at once — sometimes hundreds. An ASX 200 ETF gives you exposure to the 200 largest Australian companies through one purchase. Your return is spread across all of them.
In the ETF vs shares comparison, this is the most important distinction: concentration versus diversification.
Diversification — why it matters in the ETF vs shares debate
Buying a single company's shares concentrates your risk. If that company has a bad year, your investment suffers regardless of how the rest of the market performs. This is known as concentration risk — and it's one of the main reasons many investing beginners in Australia are guided toward ETFs first.
ETFs spread that risk. One company in an ASX ETF might perform poorly, but it's likely to represent a small fraction of the overall fund, so its impact on your returns is limited. That said, ETFs still carry market risk — if the entire index falls, the ETF falls with it.
Research and complexity
Understanding whether to buy shares in a specific company requires real research. You'd want to understand its financials, its competitive position, its management and its growth outlook. This is genuinely complex — professional analysts spend their careers on it.
An index ETF requires far less ongoing analysis. You're not trying to pick winners. You're investing in the market as a whole, accepting the market's return minus a small fee. For many people comparing ETFs vs shares for the first time, this lower complexity is a significant advantage.
Cost comparison — ETFs vs shares
Building a diversified portfolio of individual shares requires buying many different companies, each with its own brokerage fee. That adds up. Maintaining the portfolio — buying and selling as your view on individual companies changes — adds further cost.
A single broad-market ETF can give you the same diversification in one purchase. The ongoing management fee for a passive index ETF is typically between 0.03% and 0.5% per year. That's significantly cheaper than the transaction costs of actively managing a portfolio of individual shares.
Return potential — does one outperform the other?
Individual shares can significantly outperform the broader market — or significantly underperform it. The potential upside of finding a strong performer is real. So is the downside of picking poorly.
ETFs tracking broad market indices generally deliver returns in line with that market. The evidence on whether investors who pick individual shares consistently outperform index ETFs over long periods is not encouraging — most active stock pickers underperform after fees and costs.
That doesn't mean shares can't outperform. It means the bar is higher than most investors expect.
Which suits different types of investors?
ETFs may be more appropriate for investors who
Are getting started and want broad market exposure without deep research
Prefer a lower-maintenance, lower-cost approach
Have a long investment timeframe
Want to reduce concentration risk
Individual shares may appeal to investors who
Have time and genuine interest in researching specific companies
Understand the industry they're investing in
Are comfortable with higher volatility and concentration risk
Have existing investing experience
Do you have to choose one or the other?
No. Many Australians hold both — a core portfolio of broad-market ETFs for diversified exposure, alongside a smaller allocation to individual shares in companies they understand and follow closely. The appropriate split between ETFs and shares depends on individual circumstances, goals and risk tolerance.
Otivo provides licensed personal investing advice on ETFs, including guidance on whether ETFs might be more appropriate than individual shares for your specific situation.
The information in this communication is current as at April 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.