By Paul Feeney

Australia now has more than 400 ETFs listed on the ASX. That's a lot of choice — and for someone who's just figured out how ETFs work and is now wondering which ETF to buy in Australia, the options can feel overwhelming.

The good news is that choosing an ETF doesn't have to be complicated. Here's how to think about it systematically, so you can move from understanding what ETFs are to making an informed decision about which might be right for you.

Start with your goal, not the ETF

The most common mistake when comparing ETFs in Australia is starting with performance tables and working backwards. The more useful approach is to start with your goal — what are you trying to achieve, and when do you need the money?

Someone saving for a home deposit in three years has different needs to someone building wealth for retirement in 25 years. A short-term financial goal generally calls for a lower-risk ETF, like a bond ETF, that won't fluctuate as dramatically. A long-term growth goal might suit a broad share market ETF that will move more but has historically delivered stronger returns over time.

Understand what the ETF actually holds

Every ASX-listed ETF has a product disclosure statement (PDS) that explains what it invests in. Before deciding which ETF to buy in Australia, it's worth reading enough to understand the underlying assets.

An ETF labelled 'Australian shares' might track the ASX 200, the ASX 300, or a specific sector — and those are meaningfully different. 'Global shares' might mean developed markets only, emerging markets, or both. Knowing what's inside the ETF is fundamental to an honest ETF comparison.

Look at the management fee (MER)

The management expense ratio is the annual fee charged by the ETF provider, expressed as a percentage of your investment. It's deducted automatically — you won't see it as a line item — but it compounds over time.

Passive index ETFs typically charge between 0.03% and 0.5% per year. Active ETFs often charge 0.7% to 1.2% or more. Over 20 years, a 0.5% difference in fees can translate to a significant difference in final balance. When comparing ETFs in Australia, the MER deserves close attention.

Consider the ETF's size and liquidity

Larger ETFs — measured by funds under management — tend to be more liquid, meaning it's easier to buy and sell units without moving the market price. Smaller ETFs with low trading volumes can have wider gaps between buy and sell prices, which is a hidden cost that doesn't show up in the MER.

In Australia, the largest ETFs by assets tend to come from providers like Vanguard, iShares (BlackRock) and Betashares — though size alone isn't a reason to choose or avoid an ETF.

Think about geographic and sector exposure

A common approach for people learning how to choose an ETF in Australia is to start broad and add specificity later. For example, some investors begin with an Australian shares ETF and a global shares ETF to get wide market coverage, then consider adding more targeted funds as their portfolio grows.

It's also worth being aware of overlap. If you hold an ASX 200 ETF and then add a separate Australian financial sector ETF, you'll end up doubly exposed to banks and other financial companies, which already make up a significant portion of the Australian market.

Passive versus active ETFs

Passive ETFs track an index and charge lower fees. Active ETFs are managed by a team trying to outperform the market. The long-term evidence on whether active ETF managers consistently beat their benchmark after fees is mixed — most don't, over extended periods.

For most people starting out and looking for the best ETF approach in Australia, passive index ETFs are a natural starting point because of their simplicity, low cost and broad diversification.

Getting personalised guidance on which ETF suits you

General information about how to choose an ETF in Australia can take you a long way. But understanding which specific ETF is appropriate for your circumstances — your goals, timeframe, risk tolerance and existing investments — is where personal advice adds something general information can't.

Otivo provides licensed personal advice on ETF selection. Rather than navigating performance tables alone, you can get guidance tailored to your situation before you make a decision.

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.