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Have you ever stopped to ask yourself whether ETFs are helping you build wealth, or whether they’ve just become the easy default? ETF investing is sold to you as a smart, simple “set and forget” investment, which, for many people, sounds reassuring. You buy the market, you forget about it, and you feel diversified. However, when you look at the numbers, the picture changes dramatically.
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In CY25, the All-Ordinaries Index returned 7.11%, which is not bad. But think about the companies you already know. BHP (ASX:BHP) returned 15.16%, Telstra (ASX:TLS) delivered 21.75%, Coles (ASX:COL) gained 13.86%, ANZ (ASX:ANZ) rose 27.82%, while Rio Tinto (ASX:RIO) climbed 24.76%. Across those five well-known Australian names, the average return was 20.67%, before dividends.
If you held the index only through an ETF, you would have earned a 7% return, but if you had owned a focused selection, you would’ve almost tripled returns.
The reality is, you do not need insider information to spot companies like these, and you do not need to sit in front of a screen all day. One disciplined hour each week reviewing company updates, earnings results and price trends can dramatically change what ends up in your portfolio. The real question is whether you are willing to trade a bit of time for a potentially much stronger result.
Then there are the fees, which may look small. For example, the Vanguard Australian Shares Index ETF charges 0.07% per year, which may seem insignificant, but that fee quietly reduces your compounding every year. Over a decade or two, even small percentages matter and many other ETFs charge more. Over the past 10 years, that same ETF averaged around 9.39% annually. That’s solid, but if you can select companies that consistently deliver higher growth and income, why settle for average returns?
You might also be tempted by specialised ETFs, such as gold miners, clean energy, or large-cap U.S. tech funds. That feels more active, but you’re still paying fees, and you’re still exposed to full sector cycles. Booms and busts come either way.
Think about this. If you are already researching themes, watching charts and following sectors, you are halfway to direct ownership anyway. Owning individual shares gives you control as you choose the companies and their weightings in your portfolio, and you can see the dividends clearly. Of course, you will pay brokerage when you transact, but you won’t pay an ongoing management fee each year.
We’re not saying ETFs are bad, as they do serve a purpose, but you need to ask yourself what you really want. Do you want convenience and average returns, or will you put in a little focused effort to aim higher?
Your portfolio will reflect whichever choice you make.
For now, good luck and good trading.
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Dale Gillham is Chief Analyst at Wealth Within and an international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au.
Disclaimer: While Wealth Within holds an Australian Financial Services License (AFSL:226347), the information featured in this program is general in nature and therefore should not be relied upon. Before making any investment decisions, you should consult a licensed professional who can advise whether your investment decisions are appropriate for you.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
