ETF (not EFT!) stands for Exchange Traded Fund. In Australia, the most popular ETFs can be found on the ASX, Australia’s largest sharemarket.

ETFs are:

  • A bunch of investments (e.g. shares) put in one basket
  • You buy the ‘basket’ just as you would any other share on the stock exchange
  • The company that operates the ETF collects a small yearly fee, taken out of your investment automatically

Source: Rask Education

Just imagine you walk into a florist.

Instead of buying one stem or flower (a share), the florist puts together a posy or ‘basket’ of flowers (an ETF). You can buy the entire basket.

We can use this analogy to think about the difference between investing in individual shares and investing in an ETF.

To avoid picking the wrong type, I’ll almost always buy a full bunch of flowers for my wife.

Still confused?

In the Rask Education video below, I explain ETFs inside-and-out. If you want to learn more about ETF investing for beginners, you can take our free course by clicking here.