A growing number of ordinary Australians are pouring billions of their savings into exchange-traded funds (ETFs), but what are they and what are the risks?

ETFs are an investment fund full of a basket of assets, like shares, bonds, or commodities, and are typically an affordable way to obtain a diversified share portfolio.

For example, the A200 ETF tracks the ASX200, Australia’s largest 200 companies, in a single bundle so investors can spread their risk and diversify their investments, rather than betting on a singular stock.

They can also get access to overseas companies like Apple or Google. 

About 2.7 million Australians now own ETFs, which is up by 20 per cent in a year, and have invested $300 billion. Women make up nearly 680,000 of ETF holders.

Phillip Vassallo is one of those people.

The 24-year-old social worker prefers to ride his investment with the market as a low-maintenance way to grow his money.

“As a young person, if you just have money in the bank, you’re never really going to get ahead, you might just be treading water,” he said.

“It’s super easy. Just transfer the money and it’s automatically invested in all those shares rather than having to pick out 200 different ones yourself.”

Betashares chief executive Alex Vynokur said ETFs are a convenient and cost-effective way to grow wealth, especially as soaring house prices put many out of reach of property ownership.

“It’s the convenience, accessibility, transparency and cost effectiveness,” he said.

“ETFs really open up access to wealth creation without having to be a property owner.”

Betashares expects more Australians to invest in ETFs and push the industry to $500 billion in assets by 2030.

Australians can invest directly with an ETF provider, but they can also use an online broker or pick ready-made portfolios.

But Nine’s money editor Effie Zahos says ETFs are not completely risk-free.

ETFs will rise and fall in line with the value underlying assets, and global ETFs can also be hit by currency swings.

Depending on the ETF, fees can range between 0.03 per cent and 2.56 per cent.

Brokerage fees can also apply each time you make a contribution or sell, so it is important to read the product disclosure statement before investing.

ETFs also require a medium to long-term investment time frame to generate returns.

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.