Buying an ETF and buying individual shares are two ways into the same sharemarket. An ETF gives you a basket of companies in one trade; direct shares mean choosing and holding individual companies yourself. This guide compares the two on diversification, cost, effort and tax, for Australian investors deciding how hands-on they want to be.
General information only, not financial advice. Figures are approximate and as at Q2 2026. ETFLens does not hold an Australian Financial Services Licence (AFSL).
Diversification
This is the largest practical difference. A single broad ETF holds many companies at once: VAS, for example, holds around 316 Australian companies in one trade, so a poor result from any one of them is a small part of the whole. Building comparable diversification from direct shares means researching and buying many individual companies and keeping the mix balanced over time. Until you do, a direct-share portfolio is more concentrated, so a single company's troubles weigh more heavily on your result.
Cost
The cost structures differ in shape. Direct shares cost brokerage each time you buy or sell, so assembling and maintaining a spread of companies can mean many brokerage fees, but you pay no ongoing management fee to hold them. An ETF charges a management fee (MER) every year, often well under 0.30% for a broad index fund, but you reach broad diversification in a single brokerage event. For small, regular contributions, paying brokerage on many individual trades can add up faster than one ETF's fee; the fee analyser puts real dollar figures on an ETF's ongoing cost.
Effort and skill
Direct shares ask more of you: researching companies, deciding what to buy and sell, and monitoring each holding. Index ETFs are largely hands-off, since the fund simply tracks its index and rebalances for you. Some investors enjoy the research and want control over exactly what they own; others would rather not pick individual companies at all. Neither approach is right or wrong; they ask for different amounts of time and involvement.
Tax and record-keeping
With direct shares you control the timing of capital gains, because you choose when to sell each holding, and you keep the cost-base records for every parcel yourself. An ETF distributes its income and any realised capital gains to you each year through an annual tax statement, and selling your ETF units is itself a capital gains tax event. Direct shares give you more control over tax timing but more records to keep; an ETF hands you a consolidated statement but pools the timing decisions inside the fund. Tax depends on your own circumstances, which ETFLens cannot assess; consider a registered tax agent.
Combining both
The two are not mutually exclusive. Some investors hold a broad ETF as a diversified base and a few direct shares alongside it for companies they want to own directly. If you do, it is worth checking the overlap, because the shares you pick may already sit inside your ETF, which concentrates your exposure to them. The free overlap checker shows what any two ETFs share, and you can browse ASX ETFs by category. Whether ETFs, direct shares or a mix is appropriate depends on your goals, time and circumstances, which ETFLens cannot assess.