For those making 2025 the year to start their investing journey, here are two ASX ETFs that provide diversification.
Aussies are turning to the share market more and more to grow their wealth. But getting started can be a daunting proposition.
That's what makes exchange-traded funds (ETFs) an attractive option for investors who don't want to narrow their focus to just a few companies.
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What is an ETF?
An ETF is a collection of securities that can include Australian or international shares, bonds, commodities, and currencies.
You can buy and sell units in an ETF the same way you purchase individual shares. You might use a stockbroker or online share trading platform.
What this means for investors is rather than buying shares of an individual company — for example, Commonwealth Bank of Australia (ASX: CBA), an ETF pools together multiple shares of multiple companies into one holding.
It's like a basket of shares rather than just one!
The benefit for investors is you can diversify your portfolio by simply buying the one ETF.
This can offset some of the risk associated with buying individual stocks, which can rise or fall sharply as the market changes.
How to choose an ETF
For new investors, an ETF takes some of the guesswork out of picking individual stocks.
For example, if you are new to investing, you might decide to invest in one of the big four banks.
Commonwealth Bank (ASX: CBA), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
There are ETFs that include all of them. So, rather than predicting which one will have the highest returns, you can invest in all of them at once.
iShares Core S&P/ASX 200 ETF (ASX: IOZ)
One such ETF that includes the big four banks is the iShares Core S&P/ASX 200 ETF (ASX: IOZ).
That name might seem like a mouthful, but what's important is that this fund tracks the performance of the 200 largest Australian securities listed on the S&P/ASX 200 Index (ASX: XJO).
IOZ has grown by 11.29% over the past year and 17.88% over the last five years.
iShares Core S&P 500 ETF (ASX: IVV)
For new investors, pairing IOZ with iShares Core S&P 500 (IVV) will give you exposure to the largest companies in the US.
IVV tracks the S&P 500 Index (SP: .INX) which is based on the 500 largest U.S. stocks by market capitalisation.
Market capitalisation measures the total dollar value the share market assigns to a listed company at any given time.
The fund includes exposure to blue-chip US stocks like Apple Inc. (NASDAQ: AAPL), Nvidia Corp (NASDAQ: NVDA), and Amazon.com, Inc. (NASDAQ: AMZN).
IVV is up +36.16% over the past 12 months and +99.03% over the past five years.
Pairing these two ETFs together will provide a small share of the largest companies in Australia and the United States. This could provide a diversified foundation for your portfolio.
