Beyond the big banks – how other investment options can help you diversify

By Vanguard

ETFs

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There is a home bias for many Australians who load their portfolios with shares in the major banks, but they could be missing out on other strong sectors and the advantages of exchange-traded funds (ETFs).

Australians love their bank shares.

For decades, lots of investors have turned to financial institutions such as CommBank, Westpac, ANZ and NAB as the core of their portfolios. In many cases, this strategy has paid off in the form of strong returns and reliable dividends.

However, concentrating too heavily on one sector can leave you exposed to unnecessary risk and limit your chances of long-term financial growth. In Australia, where the big four banks make up almost a quarter of the S&P/ASX 300, investors can be particularly exposed to sector concentration risk. Australia’s share market also represents less than 2% of global equity market capitalisation.¹ Looking beyond the banks and your home market may provide access to a broader range of companies and investment opportunities globally.

 

Spread your risks and returns

Concentrating your holdings in Australian bank shares can make portfolios more vulnerable if the banking sector experiences weaker earnings, regulatory changes or economic shifts.

Diversification remains one of the simplest ways to manage such an investment risk. By spreading investments across multiple sectors and countries, you can reduce your reliance on a single industry while gaining exposure to businesses that are thriving on the back of different market trends.

For example, some healthcare companies may benefit from long-term demographic trends such as ageing populations, while some technology companies may be positioned to benefit from ongoing digital transformation and advances in AI.

In short, banks are not the only game in town.

 

Consider the advantages of ETFs

ETFs have made portfolio diversification much easier and more affordable. Rather than selecting individual companies, investors can allocate funds to a single ETF that provides exposure to hundreds or even thousands of securities across Australia or global markets. Investing in ETFs can be a useful way to get access to industries that may be underrepresented on the Australian Securities Exchange (ASX).

Vanguard’s Diversified or ‘ready-made’ ETFs provide a complete, diversified portfolio in a single ETF, with exposure to Australian and international shares and typically bonds. These investments can be a stand-alone investment or they can complement domestic holdings and reduce dependence on the major banks.

Investor demand for ETFs has continued to accelerate throughout 2026 with over $36 billion of net cash inflows through to 31 July 2026. The Australian ETF industry assets reached approximately $360 billion in July 2026, underscoring the growing role ETFs play as a practical and diversified investment vehicle for Australian investors.²

 

Getting the balance right

Of course, diversification does not mean avoiding bank shares altogether. Australia’s major banks can continue to play an important role within a diversified portfolio and are already a significant component of broader Australian share market investments. For example, Vanguard’s Australian Shares ETF (VAS) has around 24% exposure to the big four banks. Rather than relying too heavily on a single sector, investors may wish to consider complementing their Australian share exposure with investments across a broader range of sectors, asset classes and global markets.

In an increasingly dynamic global economy, a well-diversified portfolio may help reduce reliance on any single sector while providing exposure to a broader range of investment opportunities.

1. ^{As at 31 December 2025, Australia represented around 1.5% of global equity market capitalisation, as measured by the MSCI ACWI Investable Market Index.}
2. ^{ASX Investment Products report, July 2026}

^{Important information}

^{Diversification is no guarantee of investment success or loss avoidance. A diversified portfolio could produce negative returns if markets fall. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your portfolio. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.}