Some people want to select and invest in individual companies - like Telstra or ANZ, but for others, they’d prefer to invest in multiple companies at the same time.

And that’s possible with ETFs - or as we like to call them - the buffet of the investing world.

You can sample every meal the buffet has to offer rather than committing to just one. 

For example, you might buy an ETF that tracks the performance of an index like the ASX200, or a market sector like healthcare or technology. 

That means rather than just investing in one tech company, like Amazon, you’ll get exposure to Amazon, Apple, Meta and Netflix in the one tech-ETF.

Active vs. Passive ETFs

ETFs have fund managers, who invest your money actively or passively into the fund and manage it over the course of the investment.

Passive ETFs are for the ‘buy-and-hold’ investors who are looking for a more long-term investment.

They tend to have lower fees, but also involve less work from fund managers.

Active ETFs on the other hand requires fund managers to trade investments to try outperform the index, which is why they tend to have higher fees.

So while the return on an ETF depends on what it invests in, it also depends on how the fund adapts to changing market conditions.

There’s no right or wrong in which sort of ETF you choose, it simply depends on your investing goals and your investing horizon.

To give some perspective on what the return on ETFs can look like, here’s the top performing baddies who have delivered the strongest return across the last five years, based on data from the ASX.

Best ETF in Australia based on performance over the last 5 years

That means if you put $1,000 into the Betashares NASDAQ 100 ETF product 5 years ago, your net return would be $2,778.

These ETFs returns are net, meaning the management fees have already been deducted.

Now, while studying the past performance of ETFs can help guide your investing decisions, it’s important to remember that past performance is no guarantee of future performance.

An ETF that topped the charts this year might not do very well next year.

When you’re choosing ETFs to invest in, alongside how they perform, you also need to look at their fees, the risk level of the investment, and your investment goals.