Why ETFs Instead of Stock Picking?

The Appeal of Picking Your Own Winners

Everyone who starts investing wants to maximise how fast their money grows. It’s human nature, we chase the big wins (that’s why gambling is so addictive). If a stock jumps 50% in a year, why wouldn’t you want to just buy that instead of settling for an average market return of 8 to 10%?

It sounds logical on the surface. But the real question is this: how confident are you that you can pick a winner every single time? And how confident are you that a stock’s past performance actually predicts what it’ll do next?

A Cautionary Example

Let’s say Steven has $10,000 to invest.
He hears from a mate that shares in a company called Australian Tissue Co are about to take off.
He buys in at $1 a share, getting 10,000 shares.

Two months later, the company posts record sales and the price jumps to $1.50.
His $10,000 is now worth $15,000.
Feeling confident, he puts another $10,000 into a second tip, Australian Plastic Co, also at $1 a share.

Three months later, a competitor copies Australian Plastic Co’s product and the share price collapses to $0.10. His second $10,000 is now worth $1,000.
At the same time, new government regulation hits the tissue industry and Australian Tissue Co’s share price drops to $0.05. His original investment, which had grown to $15,000, is now worth just $500.

From an initial $20,000 across two companies, Steven is left with $1,500. None of this was in his control. He’d done his research and believed both companies would grow, but he was wrong, and the damage was severe because he was heavily concentrated in just two stocks.

This is called concentration risk, having too much of your money tied up in one company, sector, or market. In layman’s terms, it’s having too many eggs in one basket. Concentration can absolutely boost your returns if things go right, but if that one company runs into a bad news cycle, a scandal, a regulation change, or simple bad luck, your portfolio can swing into the red very quickly.

But Surely the Professionals Can Do Better?

Steven was up against something else too: full time professionals and algorithms with far more resources, data, and speed than he could ever hope to match. Every time an everyday investor buys or sells a stock, they’re competing against hedge funds, investment banks, and institutional traders who live and breathe the market.

So here’s the real question worth asking: if the professionals with all of those advantages are competing against each other, are they actually beating the market?

What the Data Actually Shows

This is where SPIVA comes in. SPIVA (S&P Indices Versus Active) is a long running scorecard published by S&P Dow Jones Indices that tracks how actively managed funds actually perform against their relevant market benchmark, including a report specifically for the Australian market.

The most recent SPIVA Australia scorecard, covering the year ending December 2025, found that a firm majority of active funds underperformed their benchmark in every category over the decade ending in December 2025. Specifically:

  • Australian Equity General funds (funds actively picking Australian shares) underperformed the S&P/ASX 200 at a rate of 74% in 2025 alone, well above their long term average underperformance rate of 60%. Over a 15 year period, 87% of these funds failed to beat the index altogether.
  • Global Equity General funds underperformed their benchmark at a rate of 70% in 2025, with underperformance rates climbing above 95% over both the 10 and 15 year periods.

Let that sink in. Across a 15 year stretch, the overwhelming majority of professional fund managers, armed with teams of analysts, institutional research, and years of experience, still couldn’t beat a simple index made up of the market’s largest companies.

Why Is Beating the Market So Hard?

A few reasons come up again and again:

  • Fees eat into returns. Active funds charge higher management fees than ETFs, and that gap compounds against you every single year.
  • Markets are efficient. Prices tend to reflect known information very quickly, leaving less room for anyone to consistently find an edge.
  • Trying to beat the market often means concentrating your bets, which, as Steven found out, cuts both ways.
  • Frequent trading racks up transaction costs and tax consequences that a simple buy and hold index approach avoids.

So What Does This Mean for You?

If the professionals, with every advantage available to them, still can’t consistently beat the market, it’s worth being honest about the odds of doing it yourself, especially while competing against those same professionals every time you place a trade.

This is exactly why so many investors choose to aim for market returns through a broad market ETF rather than trying to out-pick the pros. It might feel like the “slow” or “boring” path, but a steady, compounding return that you can actually rely on will almost always beat chasing the small chance of a big win that, more often than not, doesn’t pay off.