The S&P/ASX200 is an index of the 200 biggest companies on the Australian Securities Exchange (ASX).
It's the leading Australian stock index and the local equivalent of US stock indices like the S&P 500 and Nasdaq 100, making it a popular choice with local investors.
What's the best way to invest in the ASX 200?
Like any market index, the best way to invest in the ASX 200 is buying an exchange-traded fund (ETF) that specifically tracks the performance of the ASX 200.
An ETF is simply a fund that invests in all the companies that make up a certain index (in this case the ASX 200), making it much easier and cost-effective for investors looking to get exposure to those companies.
ASX 200 ETFs There's quite a few ETFs that track the ASX 200, but these are some of the most popular:
You could either go with a full-service broker like Morgan Stanley, or you can use an online share trading platform for about a tenth of the price.
While a professional broker can help actively manage your portfolio, if you're only looking to invest in an ETF, it might be simpler and more cost-effective to do so yourself through a trading platform.
Follow these steps to invest in the ASX 200:
Compare trading platforms
As you'll be buying an Australian ETF, you'll want to look for a platform that offers low brokerage fees on Australian stock trades. According to our research, CMVC Invest and Tiger Brokers offer $0 brokerage on all ETF trades (up to a max of $1,000 for CMC invest).
Create an account
Once you've picked a trading app, you'll need to sign up for an account by providing some personal information and verifying your identity.
Fund your account
After you've been verified, you can deposit funds into your account by bank transfer.
Find the ETF you want to buy
Once your account has been funded, navigate to the trading section and search for the ASX 200 ETF you want to buy. Again, you're looking here for the ETF with the lowest fees. According to our research, the BetaShares Australia 200 ETF has a management fee of 0.04%, while the iShares and SPDR ETFs have fees of 0.05%.
Buy the ETF
Once you've found the ETF, select how much you want to buy, review the transaction and then hit "Buy" to complete the trade.
What companies make up the ASX 200?
The ASX 200 is a who's who of huge Australian companies. Think big banks like the Commonwealth Bank and Westpac, as well as mining giants like BHP and Rio Tinto.
In fact, the ASX 200 represents around 80% of the value of the entire Australian equity market. Standard and Poor's rebalances the ASX 200 every quarter based on the performance of the companies that make up the index.
Finder survey: How long have people been investing for (outside of super)?
Response
Female
Male
I have never invested
43.95%
26.35%
Over 20 yrs
6.97%
19.11%
Between 10-20 yrs
7.3%
10.2%
Between 5-10 yrs
6.63%
9.09%
Between 2-3 yrs
8.29%
7.24%
I am not invested anymore
5.47%
7.05%
Between 1-2 yrs
6.8%
6.12%
Between 3-4 yrs
5.31%
6.49%
Between 4-5 yrs
4.15%
6.12%
Less than a year
5.14%
2.23%
Source: Finder survey by Pure Profile of 1145 Australians, December 2023
Is the ASX 200 a good investment?
The ASX 200 has returned 21.05% over the last 5 years (to 4 November 2024).
While this may seem like a fairly poor return (the Nasdaq 100 is up 145.47% in the same period), that's because the ASX 200 is skewed towards dividend yield.
In simple terms, dividends are regular cash payments given to investors based on a company's profits. If you hold shares in a specific company, you can receive dividends depending on how the company performs in a given period.
The ASX 200 has averaged a dividend yield of 4.15% p.a. over the last 13 years.
So in order to accurately measure the average return of the ASX 200, you need to add the dividend yield to the normal return. This brings the ASX 200's return more in line with other global stock indices.
When you invest in a stock market index like the ASX 200, you're bargaining that the underlying economy is going to continue growing over time.
The idea is that although indices fluctuate year-on-year, they tend to rise in the long run. This is partly because indices themselves aren't fixed. If one company on the list goes under or shrinks, it's simply replaced by the next biggest company.
Expert insight: Dividends versus diversification
"One of the biggest benefits of investing in the ASX is that many Australian companies pay dividends. Dividends are payments made by the company to its shareholders in the form of income. Now, the additional benefit to this is that some companies also provide franking credits. These credits have a rebate attached to them, that consists of the amount of tax that was already paid by the company. Ultimately, these franking credits have the potential to offer significant tax savings to investors. This is something unique to Australia, which is why the ASX can be a consideration for investors when building their investing portfolio. However, investing just in the ASX means that a portfolio is limited to just Australian companies, in which case it may be worth talking to a financial advisor to tailor your investing needs based on your risk tolerance, timeline and to ensure that you have ample diversification."
It's easy to get confused around trading and investing terms as the two can be fairly interchangeable.
However, when it comes to stock market indices it's an important distinction.
Investing in the ASX200 typically refers to an index fund, which is a relatively safe way to invest. But you can also trade stock market indices through leveraged CFDs which are much riskier.
When you trade CFD indices, you're betting on the price movements of the index. This means you have the potential to earn a profit whether the index is rising or falling.
This makes it a popular tool for traders. It's considered a high-risk product because both profits and losses are amplified through leverage.
With an index fund investment or even shares, you never lose more than you invested; however, this is not the case with CFDs.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Kylie Purcell is the senior investments editor and analyst at Finder. She has completed a Certificate of Securities and Managed Investments (RG146) and specialises in investment products including online brokers, robo-advisors, stocks and ETFs. See full bio
Kylie's expertise
Kylie has written 134 Finder guides across topics including:
Learn everything you need to know in this easy to follow, step-by-step guide to buying shares in Australia.
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