Australian investors are cautious about the economy, geopolitics and market volatility. When markets fall, they aren’t necessarily heading for the exits - they’re continuing to buy.

This episode unpacks the findings from Morningstar’s State of the Australian Investor report, which surveyed more than 1,500 investors and analysed over 7.5 million transactions from 97,000 investors in partnership with Sharesight.

While 38% of survey respondents described themselves as cautious, 93% said they would hold their investments or buy more during a market correction of 10% or more. Transaction data also showed that buying exceeded selling across three periods of market turbulence.

Not all investor behaviour is associated with better outcomes. The report found that investors making more than 100 trades had a median return of 9.6% in the 2025–26 financial year, compared with 11.2% across the overall cohort.

The episode also explores how ETFs are becoming the foundation of more portfolios, with investors combining diversified funds with individual share selections. Meanwhile, tax and income remain important considerations as Australians weigh investment decisions alongside cash savings, debt and household finances.

What else can you find in the report?

  • The average performance of Australian investors included in the study
  • Their portfolio composition
  • Their confidence levels in retirement
  • The most popular holdings, and the most traded holdings
  • How investors reacted to market shocks

You can find the full report here.

Other insights from the report:

Unconventional wisdom: The latest market obsession investors can ignore

Investors are constantly pressured to act but research suggests that knowing what to ignore is just as important as knowing what deserves your attention.

Future Focus: How did your portfolio perform against other Aussie investors?

The new State of the Australian Investor report reveals portfolio performance and how trading impacted results.

You can find the transcript below:

Mark LaMonica: Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature, does not take into consideration your personal situation, circumstances or needs.

Shani Jayamanne: So today we’re going to run through some of the insights from Morningstar’s State of the Australian Investor Report. We surveyed more than 1,500 investors and with the help of our friends at Sharesight, analyzed over 7.5 million transactions from 97,000 investors. We also examined what investors are reading, researching, and listening to on Morningstar.

LaMonica: And by we, we mean you and Sharesight. But anyway, thank you for giving credit to Morningstar as a whole. But the reason that you did this report was a pretty simple reason is trying to know who Australian investors are in 2026, what do they actually look like? And unsurprisingly, the answer is it’s complicated.

Jayamanne: The idea was to go beyond asking people what they think about investing and look at what they actually do with their money. And some of the findings were genuinely surprising, others reinforce things that we knew, but we didn’t have confirmation for.

LaMonica: So we found investors are worried about geopolitics, inflation, recession, market volatility, but despite all of these worries, they continue buying when markets fall. We found a growing preference for ETFs, even among investors who still love picking individual shares. We found that investors are making strong returns on average, but trading more frequently is associated with worse outcomes for the typical investor.

Jayamanne: We also found out that Australians are thinking about tax income and retirement in ways that tell us a lot about their broader financial priorities. So today we’re going to walk through the findings that stood out to us most, what they tell us about Australian investors and what we can learn from them.

LaMonica: Okay, one caveat before we get into the results. The report combines a survey of Morningstar’s investor community with portfolio and transaction data from Sharesight users. So those Sharesight users are financially engaged, largely self-directed investors. It is not a perfectly representative sample of the average investor. But the combination of what investors say and what they actually do gives us an interesting picture of how people are navigating today’s investment environment. And the report is free to access. Anybody can read it. Give it a read. It’s a great report. Shani did an outstanding job on it. So just go to the episode notes and you can read it.

Jayamanne: Okay, so let’s start with the finding that probably best captures the state of the Australian investor. When we asked people how they feel about investing, the most common response was cautious. 38% described themselves that way. Only 20% said they felt confident, while 10% were concerned and 3% were anxious.

LaMonica: And it was that laundry list of reasons that I mentioned before that investors responded, the things that are worrying them. So geopolitical tensions, inflation, the risk of a recession, cost of living, market volatility, they all featured prominently in the responses.

Jayamanne: And what’s interesting about this is that when we looked at what investors actually did during market shocks, we didn’t see a mass retreat from the market. We saw investors continuing to buy, even though they are feeling caution.

LaMonica: And we looked at three specific periods when we looked at that Sharesight data. We wanted to zero in on times where the market did not do well. So there was a global market sell-off in August of 2024. There was that tariff and AI-driven fall in early 2025. And then there was the Iran war period in early 2026. So across all three of those periods, buying exceeded selling. So on the busiest trading days, buys outnumbered sells by roughly two to one.

Jayamanne: And the survey responses were consistent with that behavior. When we asked investors what they would do during a market correction of 10% or more, 52% said they would hold their existing investments, and 41% said that they would buy more. That means 93% they would hold or buy rather than sell.

LaMonica: Which I think is pretty remarkable given how worried investors said they were in the survey.

Jayamanne: Exactly, Mark. But I think the interesting thing is that these findings aren’t necessarily contradictory. You can be worried about geopolitical tensions or inflation and still believe that investing is the best way to achieve your long-term financial goals.

LaMonica: And we think a lot of investors probably learned from previous downturns that selling when markets fall can mean missing the recovery. So there’s been years of market shocks followed by recoveries, and there is a possibility that people have just become conditioned to see falling prices as an opportunity.

Jayamanne: But we shouldn’t confuse that with investors having conquered their emotions. 45% of respondents said that they had previously regretted selling an investment during pronounced volatility. Another 44% said that they had delayed investing because they were waiting for a market crash.

LaMonica: And among those that delayed investing, only about half thought that waiting had been the right decision. So investors certainly understand the principle of buying or simply holding during volatility.

Jayamanne: The second finding is one of my favorites because it illustrates why averages can be misleading. In financial year 2026, the typical investor in our Sharesight data just made five trades. That was unchanged from the previous financial year. But the average number of trades increased from 30.6 to 41.7. So how can the average investor be making more than eight times as many trades as the typical investor? The answer is that trading activity is highly concentrated. A relatively small group of very active investors accounted for a disproportionate share of transactions.

LaMonica: So the proportion of investors who traded at least once actually fell between those two financial years. So it was 73.2, it fell to 71.6. But the total voluntary trade, so that’s not dividend reinvestment. So voluntary trades.

Jayamanne: Or corporate actions.

LaMonica: Or corporate actions. So the voluntary trades increased by 21%. So from 3.38 million within that data set to 4.07 million. So what does this mean? It means that that increase was driven by a new cohort of heavily traded portfolios entering into that population rather than by all of the investors suddenly trading more frequently.

Jayamanne: So when we hear that retail trading is increasing, it doesn’t necessarily mean everyone is becoming more active. And this is particularly important when we look at investment performance. One of the clearest patterns in the report was the relationship between trading frequency and returns.

LaMonica: So across both of the financial years, we examined median returns tended to decline as trading frequency increased. So you trade more, you get lower returns. So in the 2026 financial year, investors who made more than a hundred trades had a median return of 9.6% compared with a median return across all of the data that we looked at of 11.2%.

Jayamanne: The most active investors also tended to hold larger and more complex portfolios. Their median portfolio value was around $315,000 compared with approximately $59,000 for investors who made no trades. These weren’t necessarily people making tiny trades with small amounts of money. They often had substantial portfolios.

LaMonica: There was also a larger variation in the outcomes in that heavy trader cohort. So their average return was higher than their median. So what that tells us is some investors in this group did extremely well, but the typical investor in the group did not do well, had a weaker result.

Jayamanne: So it’s important to be true to the data, which says that trading itself doesn’t cause lower returns, but this is obviously only looking at two years of data.

LaMonica: But every trade does represent a decision. So it might be a sensible decision, but it also means costs, could mean tax consequences, and of course the risk of getting the timing wrong. So we’re going to advocate for something that we always do on this podcast. Have a clear investment strategy rather than treating every new piece of information as a reason to act.

Jayamanne: Another major finding was a continued rise of exchange traded funds or ETFs. ETF’s share of portfolio value in our Sharesight data increased from 22.6% to 26.2% between financial year ’25 and ’26. The proportion of portfolios holding an ETF rose from 62.7 to 64.2%. And the four most widely held securities in the data were all ETFs, Vanguard Australian Shares Index ETF, Vanguard MSCI International Shares ETF, iShares S&P 500 ETF, and BetaShares NASDAQ 100 ETF.

LaMonica: So investors are using ETFs increasingly instead of relying entirely on individual companies. They’re doing this to access broad markets, sectors, and international markets. Three out of the four were global ETFs. So ETFs are certainly growing. We knew that already. But what we got to see is how investors are actually using them.

Jayamanne: Yeah. So we found that ETF purchases outnumbered ETF sales by between roughly three and five times across all the quarters that were examined in the study. For individual shares, the ratio was much lower at around 1.5 to 1.7. So we’re seeing investors treat ETFs differently from individual shares. ETFs are more likely to be accumulated and held, while individual shares are more likely to be bought or sold in response to changing views.

LaMonica: So what we’re seeing is the emergence of this hybrid portfolio, a diversified core of ETFs, and then individual shares around the edges.

Jayamanne: So investors aren’t necessarily choosing between a kind of passive or active investing. They’re combining the two.

LaMonica: And it is a bit more of a nuanced picture than that traditional distinction between passive investors who simply buy the market and active investors who pick stocks. And this is definitely more prevalent with investors who are new to Sharesight. So in our data, ETFs represented around 40% of the portfolio value for the new entrants compared with 26.2% across that overall population.

Jayamanne: And one possible explanation is that these investors are starting with ETFs rather than accumulating individual shares first and gradually diversifying later. Established investors may also have legacy holdings or unrealized capital gains that make it more difficult to restructure their portfolios.

LaMonica: And we can, of course, conclude that every new investor follows this approach. But we can see in the data and across the years that portfolios are being built differently.

Jayamanne: And another consistent theme across the report was the importance of income. Aussie investors love income and they love franking credits. And there’s a good reason. Income is an important component of portfolio outcomes.

LaMonica: And we can see this across the two years that we looked at, two financial years. So in the Sharesight data, income contributed 4.1 percentage points to dollar weighted portfolio returns in financial year 2026. And that was up from 3.6 percentage points in financial year 2025.

Jayamanne: So tax was another thing that kept coming up. Around 35% of survey respondents identified tax as a significant current concern, while 33% said it had become more important over the previous year. We saw similar interest in Morningstar’s content consumption with strong engagement around capital gains tax, trusts, superannuation, and tax-efficient investing.

LaMonica: And we do think this is a very good thing that investors are increasingly thinking about the after tax outcomes rather than simply the headline returns. This matters in several ways, but it can influence decisions about when to sell an investment, how to structure a portfolio, which investments to hold, and how asset placement in different accounts or structures.

Jayamanne: But a tax advantage doesn’t necessarily mean that an investment is attractive, and avoiding a capital gain isn’t always the best decision if the underlying investment no longer suits your goals. The important point is that investors are increasingly considering tax as part of the investment decision rather than an afterthought.

LaMonica: Yeah, and tax obviously was one big thing that has happened with the changes to capital gains taxes. Another thing, obviously, that’s happening is interest rates. And the report found that changing interest rate expectations affected more than just investment choices. 35% of respondents said they had increased cash savings, including money in an offset account, while 28% had bought dividend paying shares.

Jayamanne: So ultimately, investors aren’t making decisions about their portfolio in isolation. They’re weighing up cash, debt, investment risk, and household spending together.

LaMonica: All right. So now we’re going to get to the exciting part of the report. I think the whole report’s exciting, Shani.

Jayamanne: Thank you.

LaMonica: But this is what people really salivate.

Jayamanne: It’s very long.

LaMonica: It is very long. Like this podcast. But now we’re going to get to what people really salivate over, Shani, because we all want to just compare ourselves to other people. So we all want to hear about the performance. It is certainly easy to look at strong market returns or any market returns and assume that people were doing well. But let’s get into it.

Jayamanne: All right. So the Sharesight data showed that investors continue to generate positive returns on average. Among the match cohort of portfolios tracked across both years, the average return was 13.3% in financial year ’26 compared with 13.9% in financial year ’25. But the median return fell from 13% to 11%.

LaMonica: And also we saw the proportion of portfolios that finished the year with a positive return going down from 87% to 82.4%. So while that average return remains strong, the experience of the typical investor was less favorable. A relatively small number of very strong portfolios can of course pull up an average, while many of the investors in a data set could have experienced poor returns.

Jayamanne: We also need to be careful when we’re comparing these returns to market returns. The portfolios in our data hold different combinations of Australian shares, international investments, ETFs, and other assets. They’re not directly comparable with a single index such as the ASX 200.

LaMonica: Alright, so reading your report, Shani. I am going to summarize the Australian investor in 2026. So I’ll go with cautious, but engaged, and I think increasingly deliberate around decision making.

Jayamanne: I think that’s a good summation. But investors are worried about the world around them, but they haven’t stopped investing. They are increasingly using ETFs as the foundation of their portfolios while continuing to pick individual shares. They value income, pay more attention to tax, and are thinking about their financial lives as a whole rather than treating their investment portfolios as separate from everything else.

LaMonica: And I think, as we said before, I think one of the best things about the report is that, you know, it shows you what investors say, what they own, and what they do, and all of that can tell us very different things, and maybe that’s the most important finding.

Jayamanne: Yeah, obviously a survey can capture intentions and concerns. Portfolio data shows how people allocate their money and transaction data shows the decisions that they actually make. And content consumption tells us what they’re trying to understand.

LaMonica: And when we bring all of those different sources together, we get a much richer picture of investor behavior than we would get from any of those data sets in isolation. There are obviously limitations to this. The report does reflect a financially engaged group of investors. Past behavior doesn’t guarantee what people will do in the future. But I do think that the findings, they are useful starting point to understand how Aussies are navigating a really complicated investment landscape.

Jayamanne: And if you’d like to take a look at the data in more detail, you can read the full report on morningstar.com.au and we’ll link it in the episode notes. And a huge thanks to Sharesight for working on this report with us. Some of the most interesting insights from the report couldn’t have been possible without them.

LaMonica: Alright. Well, thank you guys very much for listening. Check out the report. Shani and Sharesight did an amazing job on it.

(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia proprietary limited and/or Morningstar Research Limited without reference to your financial objectives, situations, or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact the financial advisor.)

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