What are some different investment options?

Common investment options

While the ASX is home to thousands of shares, there are many other options for investing too. This article includes a comparison between shares, exchange-traded funds (ETFs) and managed funds.

Shares

Definition
Shares are units of ownership in a company. The terms "shares" and "stocks" are often used interchangeably, but they are technically different. A “share” is an individual unit of ownership in a company, whereas “stock” refers to the shares in a company”.

Diversification
Diversification means investing in a number of different investments to manage risk. Generally, investing in shares offers less diversification than ETFs or managed funds since each share represents ownership in a single company. It's up to the investor to diversify their share portfolio.

Availability & Trading behaviour
Can be bought on the stock exchange in real time during market hours which requires a trading account and broker.

Management & Control
Shares are non-managed investments. The investor has full control over stock selection.

Fees & costs
Brokerage fees are incurred per trade.

Exchange-traded funds (ETFs)

Definition
An ETF is like a basket that holds a variety of investments. You can buy and sell units in an ETF on the stock market, just like you would with individual shares. However, when investing in an ETF, you own units in the fund and not the individual underlying investments.

Diversification
ETFs commonly provide exposure to a single asset class or market sector. However, a smaller number of mixed asset ETFs are also available.

ETFs can help diversify your portfolio, as each unit in an ETF represents a variety of investments that often replicates the performance of a specific market index or benchmark.

For example, the ASX200 market index tracks Australia's top 200 listed companies and an ETF tracking this index may provide exposure to 200 companies as opposed to just a single company.

Availability & Trading behaviour
Can be bought on the stock exchange in real time during market hours which requires a trading account and broker.

Management & Control
Typically, passively managed and track the performance of a market index or benchmark. However, actively managed ETFs are also available.

An investor has no control over individual holdings within the ETF.

Fees & costs
Brokerage fees are incurred per trade and an ongoing management fee is charged by the ETF provider.

Ongoing management fees are incorporated into the unit price. 

Managed Funds

Definition
A managed fund is an investment where your money is pooled together with other investors. Think of it like a pot that you and others all put money into, that a professional then manages and invests into different assets on your behalf.

When you invest in a managed fund, you own units in the fund and not the underlying assets.

Diversification
Managed funds may provide exposure to different asset classes, industries, market sectors and even countries, and this may change from time to time in line with the objectives of the fund. Managed funds can also provide exposure to unlisted (or private) assets that aren't offered on the stock exchange.

The managed fund universe provides more options; however, managed funds may not always be more diversified than ETFs. It depends on the characteristics of each ETF and managed fund.

Availability & Trading behaviour
Can be invested in directly with the fund manager or via an intermediary. Transactions take more time to process.

Management & Control
May be passively managed or actively managed by a professional fund manager. In an actively managed fund, the fund manager buys and sells investments, aiming to meet the fund’s objectives, instead of buying and holding investments to track an index.

An investor has no control over individual holdings within the fund.

Fees & costs
Ongoing management fees are payable and will vary depending on factors such as the type of assets being managed, active vs passive management, and in some cases performance. These fees are incorporated into the unit price.

A buy/sell spread may also apply, which is the difference between the buying price and the selling price of a unit, and transaction fees may also apply.

Before investing in a managed fund, refer to the product disclosure statement for fee details.

Considerations when choosing an investment option

Your investment goals and risk appetite will largely determine which investments are suitable for you. Your investment timeframe can also impact how much risk you’re comfortable with accepting.

For example, with short-term goals you may prefer low-risk investments that provide lower returns but are generally more stable. Whereas, for longer-term goals, you might consider higher-risk investments with the potential for higher returns. When you have a longer investment timeframe, you're more likely to be able to ride out periods of poor performance and wait for markets to recover.

It’s important to remember that all investments come with risks, including the potential for periods of poor performance or the relevant market/s experiencing a downturn.

Before investing, it is important to consider your investment goals and risk appetite, as well as doing your research and reading the relevant disclosure documents to ensure you understand the risks associated with an investment.