If you've got $5,000 ready to invest, one of the big decisions many Australians face is this: do you buy individual ASX 200 shares or stick with the simplicity of ASX exchange traded funds (ETFs)?
There's no one-size-fits-all answer — both strategies can work.
But understanding the differences, advantages, and trade-offs can help you decide what makes the most sense for you this month.
Let's break it down.
ASX 200 shares
The ASX 200 index is Australia's flagship index — a collection of the 200 largest companies listed on the Australian share market, spanning sectors like banking, mining, retail, healthcare, and tech.
It includes household names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), Telstra Group Ltd (ASX: TLS), and Wesfarmers Ltd (ASX: WES).
If you're confident in your research, buying individual ASX 200 shares can be rewarding — and potentially more lucrative.
Owning shares in top-performing businesses like Pro Medicus Ltd (ASX: PME) or Xero Ltd (ASX: XRO) allows you to target specific opportunities and potentially outperform the market. You also get full control over your portfolio, including dividend reinvestment, sector exposure, and portfolio weighting.
But there's a catch — you have to get it right. Stock picking requires time, knowledge, and a strong stomach when volatility strikes. For many investors, it can become stressful or overwhelming, especially during uncertain market conditions.
ASX ETFs
An ASX 200 ETF — like iShares Core S&P/ASX 200 ETF (ASX: IOZ) — gives you instant exposure to the top 200 Australian companies in a single trade. This makes it a low-cost, low-effort way to invest in the overall market. For beginners or hands-off investors, this can be a very smart starting point.
But you're not limited to just the ASX 200. There are plenty of alternative ASX ETFs that open the door to global opportunities and megatrend investing.
For example, the Betashares Nasdaq 100 ETF (ASX: NDQ) gives you exposure to global tech giants, the VanEck Morningstar Wide Moat ETF (ASX: MOAT) targets US companies with sustainable competitive advantages, and the Vanguard MSCI Index International Shares ETF (ASX: VGS) offers broad diversification across more than 1,500 global companies.
Which is better for your $5,000?
If you love researching companies and want the chance to outperform, building a portfolio of ASX 200 shares could be the way to go. But it requires confidence, time, and a clear strategy.
If you want to keep things simple — without sacrificing long-term performance — an ASX ETF is hard to beat.
But perhaps a combination of both could be the best way to invest that $5,000.
