Index funds on the ASX: a beginner's first portfolio

An index fund (or ETF — exchange-traded fund) holds a basket of shares designed to track a market index, like the S&P/ASX 200 or a global share index. You buy one unit on the ASX through a broker and instantly own a slice of hundreds of companies.

For a first portfolio, a single broadly diversified low-cost index fund is a defensible answer. It is not a compromise; it is the allocation many professional investors fail to beat after fees. The average active fund manager, over long periods, underperforms a low-cost index of the same market.

When comparing ETFs, look at three numbers: the management fee (MER), the fund size, and what index it tracks. A broad-market global ETF at around 0.1–0.2% per year is a common starting point; an ASX-focused ETF is another. Together they cover Australian and global shares.

Use a low-cost broker. Several Australian brokers charge no monthly fee and a small flat trade cost, which matters when you're investing small regular amounts. Some offer fractional or regular automated investing, which removes the need to time the market.

Ignore promotional offers — they expire, fees do not. And don't chase the ETF that returned the most last year; chasing past performance is one of the most reliable ways to underperform.

Finally, automate. Set a fixed contribution on payday so investing does not depend on how you feel about the news that week. Then write down why you chose this plan, so you can read it back during the first downturn — because there will be one, and holding through it is the whole point.