DIY investing: Stocks, managed funds or ETFs?
By Vanguard
Investing strategy
Different paths to the same goal
One of the biggest misconceptions about investing is that your first decision is choosing which shares to buy.
In reality, one of the most important decisions comes earlier: deciding how you want to invest.
Should you build your own portfolio of individual shares, leave the investment decisions to a fund manager, or invest through exchange-traded funds (ETFs)?
Each approach has advantages and trade-offs. The right choice depends on factors such as:
- your knowledge of investments
- the amount of time you want to spend managing your portfolio
- your comfort with making investment decisions yourself
- your investment goals and risk tolerance
Individual stocks: Greater control, greater responsibility
Buying individual shares gives you complete control over your portfolio. You decide which companies to own, when to buy them and when to sell.
The potential reward is outperforming the broader market if your investment decisions prove successful.
The trade-off is that mistakes can be costly. A concentrated portfolio carries more risk than a diversified one, while researching businesses requires time, discipline and the confidence to stay invested through periods of market volatility.
Building a diversified portfolio also becomes more complex as your investments grow. Instead of making a single purchase, you’ll often need to buy and monitor multiple companies. As such costs can add up – both in terms of brokerage fees and the time spent reviewing individual holdings.
Actively managed funds: Professional expertise
Actively managed funds are designed for investors who prefer to delegate investment decisions to professional portfolio managers.
Portfolio managers research companies, construct portfolios and adjust holdings as market conditions change, giving investors access to specialist investment expertise without having to make every decision themselves.
The trade-off is that investors typically pay higher management fees for that expertise, and there’s no guarantee a manager will outperform the market.
Evidence shows just how difficult that can be. According to the latest S&P Dow Jones Indices SPIVA Scorecard, 79% of actively managed Australian equity funds and 70% of actively managed global equity funds underperformed their benchmarks over the 12 months to 30 June 2026.
Over the 15 years to 30 June 2026, 89% of actively managed Australian equity funds and 96% of actively managed global equity funds failed to outperform their benchmark after fees.1
That doesn’t mean active management can’t add value. Some managers have outperformed over long periods, particularly in less efficient areas of the market. Other active strategies – such as those designed to deliver lower volatility or higher income – may also suit investors with specific objectives.
ETFs: Diversification with flexibility
ETFs combine many of the benefits of individual shares with the diversification and simplicity of index investing. ETFs started primarily as index products, but over time there has been the development of actively managed ETFs.
Like managed funds, ETFs provide diversified exposure through a single investment. But because they trade on the ASX, investors can buy and sell them throughout the trading day, just like individual shares.
Many ETFs track an index, helping to keep costs low while providing exposure to Australian shares, global shares, bonds and other asset classes. Others are actively managed, focus on specific sectors or investment themes, or provide a diversified multi-asset portfolio in a single investment.
For investors looking for a simple, diversified portfolio that requires relatively little ongoing maintenance, ETFs focusing on broad markets, such as Australian and global equities or fixed-interest securities, may offer an accessible starting point.
Investor choice of ETFs continues to expand, as of 31 August 2026 there were 468 different ETFs listed on the ASX.
However, the rapid growth of the ETF market has also created more choice and more complexity. While many ETFs provide broad market exposure, others invest in narrow sectors, emerging themes or use leverage and other specialised strategies that carry significantly higher risks.
Importantly, an ETF is simply a vehicle that can hold many different types of underlying investments. Understanding what sits inside an ETF is just as important as choosing the ETF itself.
Bringing it together with a core-satellite strategy
The good news is you don’t have to choose just one approach.
Each investment vehicle has its own strengths. ETFs offer low-cost diversification, actively managed funds provide access to professional investment expertise, and individual shares give investors the greatest level of control.
Rather than viewing these as competing options, many investors combine them using what’s known as a “core-satellite” strategy.
The core forms the foundation of the portfolio and is typically invested in diversified, lower-cost investments designed to deliver long-term market returns. Broad-market ETFs are well suited to this role because they provide cost-effective exposure to hundreds or even thousands of companies through a single investment.
The satellites are smaller, higher-conviction positions designed to complement the core.
These might include individual shares, a high-quality active manager, or an ETF providing targeted exposure to a sector or investment theme expected to outperform over time.
By keeping the majority of the portfolio in a diversified core while limiting satellite positions to a smaller allocation, investors can pursue additional opportunities without materially increasing overall portfolio risk.
There is no single formula. Some investors choose to build their entire portfolio using only a diversified core investment, while others include satellite investments to gain exposure to specific sectors, themes or opportunities. The right approach depends on your goals, investment experience and risk tolerance.
There is no single “winner”
Based on your preferences, you may be drawn to one approach.
But successful investing is less about choosing between stocks, actively managed funds or ETFs and more about finding a strategy that matches your goals, behaviour and the time you’re willing to devote to investing.
The best strategy is often the one you can stick with through changing market conditions.