How to invest in ETFs in Australia, step by step

Before you start

Buying an ETF is mechanically the same as buying a share, and it takes a few minutes. The part that deserves your time comes first. Three questions are worth answering honestly:

• Is this money you can leave alone for five years or more? Share markets fall by a fifth or more roughly once a decade. Money you will need for a house deposit in 18 months does not belong in a share ETF.
• Do you have high-interest debt? Paying off a credit card at 20 percent is a guaranteed return no index fund will match.
• Do you want to invest or to trade? This guide is about investing: buying and holding. If you want to take short-term positions on markets, the instrument and the broker are different, and that is covered at the end.

Disclosure: SatoshiMacro may earn a commission if you open an account through links on this page, at no extra cost to you. See our full affiliate disclosure.

Step 1: Choose a broker

ETFs are listed on the ASX and on Cboe Australia (now TMX Australia), so you need a share broker. Australians are well served here: the bank-owned platforms (CommSec, nabtrade), the independents (CMC Invest, Selfwealth, Pearler, Stake, moomoo, Interactive Brokers), and issuer-run platforms (Vanguard Personal Investor, Betashares Direct) all offer ASX-listed ETFs. Three things separate them.

Brokerage. It ranges from zero on selected ETFs or small trades at some brokers to AUD 20 to 30 per trade at the banks. For someone buying AUD 1,000 parcels, the difference between AUD 0 and AUD 20 brokerage is 2 percent of every purchase. That is about 30 years of management fees on a cheap index ETF, paid up front.

CHESS-sponsored or custodial. With a CHESS-sponsored broker, your units are registered in your name on the ASX's subregister under a personal Holder Identification Number (HIN). With a custodial broker, a custodian holds the units in a pooled account and you are the beneficial owner. Custody is what makes fractional units and very low brokerage possible. CHESS gives you direct legal title and easy transfers between brokers. Both are regulated. Plenty of long-term investors prefer a HIN for the clean title, but it is a preference, not a rule.

Automation. If you plan to invest monthly, a broker with automatic recurring purchases removes the temptation to time the market.

Step 2: Open and fund the account

Account opening is online and usually takes under 10 minutes. You will need photo ID for electronic verification, your residential address, and your tax file number. Supplying a TFN is not compulsory, but without it the ETF's registry must withhold tax from your distributions at the top marginal rate, and you then wait until your tax return to get it back.

Fund the account by PayID, Osko, or standard bank transfer. PayID transfers generally arrive within minutes. Some brokers open a linked cash account in your name; others hold your money in a pooled trust account. Either way, do not transfer more than you intend to invest soon. Idle cash in a brokerage account typically earns little or nothing.

Step 3: Choose an ETF

Decide on the market first and the product second. "I want exposure to the largest Australian companies" is a decision. Whether that becomes VAS, A200, IOZ, or STW is a detail, because they hold nearly the same shares.

Once you know the market, an ETF fact sheet can be read in two minutes. Look at five things:

1. The index. What exactly does it track, and how many holdings does that mean? The S&P/ASX 200 and the S&P/ASX 300 are close cousins. A "global technology leaders" index with 40 stocks is a different animal.
2. The management fee. For broad Australian and US share ETFs, anything above about 0.20 percent needs a reason.
3. Fund size and age. Funds under AUD 50 million or so are more likely to have wide spreads and a higher chance of being closed.
4. The bid-ask spread. Check it on your broker's screen during the middle of the trading day. A spread of 0.02 to 0.10 percent is normal for big ETFs.
5. Hedged or unhedged. International ETFs come in both. Unhedged means the Australian dollar's moves affect your return; hedged removes that at a slightly higher fee.

Tickers are examples of each category, not recommendations. Fee ranges are indicative; check the issuer's current product page.

Step 4: Place the order

Search the ticker, check that the full fund name matches what you researched, and open the order ticket. You will be asked for a quantity (or dollar amount) and an order type.

• Market order: buys immediately at the best available offer. Fine for the largest ETFs in the middle of the day. Risky in small ETFs, where the best offer may be a long way from fair value.
• Limit order: buys only at your price or better. This is the one to use. Set the limit at the current offer if you want to be filled now, or a cent or two lower if you are patient.

Two timing habits cost nothing. Avoid the first and last 15 minutes of the ASX session. Just after the 10 am open, market makers are still pricing the basket and spreads are at their widest. For international ETFs, remember the underlying markets are closed during the Australian day, so the ETF is priced off futures and currency moves; spreads are a touch wider as a result, which is normal.

After submission you receive an order confirmation, then a contract note once the trade executes. Settlement is T+2: the money leaves your account and the units arrive two business days later.

Step 5: After you buy

A week or so after your first purchase in a CHESS-sponsored holding, a letter or email arrives from the ETF's share registry (usually Computershare, MUFG/Link, or Boardroom). Log in to the registry and do three things: confirm your TFN, add bank details for distributions, and choose between cash distributions and the distribution reinvestment plan (DRP). Reinvested distributions are still taxable, and each reinvestment creates a new parcel with its own cost base, so keep the statements.

Each year between July and September the issuer sends an annual tax statement (for most ETFs now called an AMMA statement). That document, not your bank deposits, is what goes into your tax return. The ETF tax guide explains how to read it.

Then the hard part: do nothing. The investors who do best in index ETFs are, to a striking degree, the ones who keep buying on schedule and do not react to headlines.

Common first-year mistakes

• Paying 2 percent in brokerage on small parcels. Match your purchase size to your broker's fee, or change broker.
• Buying five ETFs that hold the same thing. VAS plus A200 plus IOZ is one position with three sets of paperwork.
• Chasing last year's best performer. The top of the 12-month return table is usually a narrow thematic or geared fund at the end of a strong run.
• Market orders at 10:01 am. See above.
• Treating geared or inverse ETFs as ordinary ETFs. Their long-run behaviour differs from what the name implies. Read geared ETFs and inverse ETFs first.
• Throwing away tax statements. You will need cost-base records the day you sell, which might be in 2040.

If you want to trade, not invest

Everything above assumes you are buying to hold. Some readers arrive here wanting something else: to go long or short SPY, QQQ, or GLD for days or weeks, with leverage, often during the US session. A share-trading account is the wrong tool for that. ASX-listed ETFs cannot practically be shorted by retail investors, carry no leverage, and do not include the US-listed ETFs traders follow.

That is done with ETF CFDs through an ASIC-regulated CFD broker. You do not own the ETF; you hold a contract on its price, with retail leverage capped by ASIC at 5:1, overnight financing charges, and no CGT discount on profits. Most retail CFD accounts lose money. ETF trading in Australia explains how it works and compares it with owning the units.

Frequently asked questions