SMSF Share & ETF Investing and Trading Course
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With a strategy in place, the next question is what exactly do we buy? This lesson gives you a repeatable selection process: the criteria that matter when assessing any share or ETF, a simple scorecard to make decisions consistent and documentable and the two great schools of investment analysis — fundamental and technical. A documented, criteria-based process is not just good investing; it is good governance that your SMSF auditor will appreciate.
- Apply a structured set of criteria when selecting shares and ETFs
- Build and use a simple investment scorecard
- Distinguish fundamental analysis from technical analysis and know when to use each
- Read basic financial health indicators and a price chart
Estimated time: 60 minutes
3.1 Criteria for Selecting Shares and ETFs
Watch: The 5-part selection framework in 60 seconds
The 4-question stock screen, P/E ratio, ROE, ETF 3-filter selection and why you should always read the annual report — condensed into a 60-second stickman animation:
The Selection Funnel
Professional investors rarely analyse everything — they filter. A practical funnel for an SMSF trustee looks like this:
- Strategy fit first. Does the candidate fill a role in your core-satellite plan (Lesson 2)? If not, stop here.
- Quality screen. Apply the criteria below to weed out weak candidates.
- Valuation check. Even a great company is a bad investment at the wrong price.
- Size and document. Decide the position size, record the reasoning in trustee minutes.
Key criteria — what to check and why
| Criterion | What to Look For (Shares) | What to Look For (ETFs) |
|---|---|---|
| Financial health | Rising revenue and profit, healthy margins, manageable debt | Not applicable at fund level — check index quality instead |
| Sector trends | Industry growing; company holds or gains market share | Sector/theme has a durable long-term driver, not a fad |
| Valuation | P/E and dividend yield reasonable versus history and peers | Valuation of underlying index; avoid buying at obvious peaks |
| Fees / cost | Brokerage only | MER (aim low for core: under ~0.30%); check buy/sell spread |
| Management quality | Experienced, aligned leadership with a track record | Reputable issuer; fund accurately tracks its index (low tracking error) |
| Liquidity | Adequate daily trading volume | Reasonable on-screen volume and tight spreads; decent fund size (FUM) |
| Income & franking | Sustainable dividend, franking level | Distribution yield and franking passed through for AU equity ETFs |
| Risk | Earnings stability, balance-sheet strength | Concentration of the index (top-10 weight), currency exposure |
The investment scorecard
To keep decisions consistent — and auditable — score each candidate out of 10 on the criteria that matter most to your strategy. The chart below shows a worked example for a hypothetical candidate. In your assessment worksheet you’ll score one of your own:
The 8 financial ratios that matter
Every serious stock analysis starts with these ratios. You do not need to be an accountant — just know what green, amber and red look like for each:
| Ratio | What it means | Green ✅ | Amber ⚠️ | Red 🚩 |
|---|---|---|---|---|
| P/E ratio (Price ÷ EPS) | How much you pay per $1 of profit | < 15 | 15–25 | > 25 |
| ROE (NPAT ÷ equity) | Return on shareholder capital | > 15% | 8–15% | < 8% |
| Debt / equity | Leverage — how loaded up on debt | < 0.5 | 0.5–1.5 | > 1.5 |
| Revenue growth (5-yr CAGR) | Top-line growth trend | > 8% p.a. | 3–8% p.a. | < 3% / neg. |
| Dividend yield | Income return | 4–6% franked | 2–4% / 6–8% | < 1% / > 10% |
| Dividend cover (EPS ÷ DPS) | How safe the dividend is | > 1.75x | 1.25–1.75x | < 1.25x |
| Current ratio | Short-term liquidity | > 1.5 | 1.0–1.5 | < 1.0 |
| FCF yield | Real cash generation | > 6% | 3–6% | < 3% / neg. |
On a $200,000 core holding earning 7% gross, a 1.00% MER leaves 6.0% net (grows to ≈ $358,000 in 10 years), while a 0.10% MER leaves 6.9% (≈ $390,000). The fee difference alone costs roughly $32,000 over a decade — a powerful argument for low-cost core ETFs.
3.2 Fundamental and Technical Analysis
Fundamental Analysis — What Is the Business Worth?
Fundamental analysis evaluates a company’s (or index’s) underlying financial health and future prospects to estimate what the investment is worth. Fundamental investors ask: “Is this a good business and is the price fair?”
Core tools include:
- Financial statements — revenue, profit, cash flow, debt (found in annual/half-year reports)
- Ratios — price-to-earnings (P/E), dividend yield, return on equity (ROE), debt-to-equity
- Qualitative factors — competitive advantage (“moat”), management, industry position
Fundamental analysis suits long-term investors — which is most SMSF trustees most of the time.
Technical Analysis — What Is the Price Telling Us?
Technical analysis studies price charts and trading volume to identify trends, momentum and likely turning points. Technical traders ask: “What is the market doing and when should I act?”
Core tools include:
- Trend lines and moving averages — is the price trending up, down or sideways?
- Momentum indicators — e.g. Relative Strength Index (RSI), which flags overbought (typically above 70) and oversold (below 30) conditions
- Volume analysis — rising volume confirms the strength of a price move
Technical analysis suits timing decisions — when to enter or exit a position your fundamental analysis has already selected.
Comparison of Fundamental and Technical Analysis
| Aspect | Fundamental Analysis | Technical Analysis |
|---|---|---|
| Core question | What is it worth? | When should I trade? |
| Focus | Company health, earnings, growth | Price patterns, trends, momentum |
| Key inputs | Financial statements, ratios, industry data | Charts, moving averages, RSI, volume |
| Time horizon | Months to years | Days to months |
| Best SMSF use | Selecting what to buy for the portfolio | Timing entries, exits and stop levels |
Putting them together. A practical SMSF workflow: use fundamental analysis to choose investments for the satellite portfolio, then use basic technical analysis (trend and moving averages) to time entries — for example, building a position during a pullback in a long-term uptrend rather than chasing a spike.
Lesson 3 Summary — Key Takeaways
- Use a selection funnel: strategy fit → quality screen → valuation → size and document
- Assess shares on financial health, sector trends, valuation, management, liquidity and income; assess ETFs on index quality, MER, tracking, liquidity and concentration
- The 8-ratio cheat sheet and a simple scorecard make decisions consistent, comparable and auditable
- Fundamental analysis answers “what to buy”; technical analysis answers “when to act” — most SMSF trustees lead with fundamentals
- Low fees compound in your favour; a 1% fee difference can cost tens of thousands over a decade
Read How to Choose Stocks and How to Select the Right ETF on Investopedia. Then create a shortlist of three shares and three ETFs; score each on the criteria above and rank your shortlist.
Multiple-choice questions on the selection criteria and the difference between fundamental and technical analysis, plus submission of your scored shortlist.
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