Stocks vs. ETFs: Which Should You Start Investing?

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If you are a novice to investment, you may wonder whether it is advisable to invest in individual stocks or ETFs. Online share trading gives you a great investment opportunity, as well as a share of ownership in a particular company. With exchange-traded funds (ETFs), you get access to various types of stocks and bonds traded on a stock exchange.

How Are Stocks Different from ETFs?

Though each investment option has its own merits and demerits, most investors find it not easy to choose between stocks and ETFs when making an educated choice. Before that, you need to know the differences between them.

Stocks or equities are individual shares of various companies. Trading in stocks gives you ownership of a company. The rise and fall in the prices of stock depend largely on the performance of the company. If your investment is restricted to the stocks of one particular company or several companies, your gains or losses are dependent on the performance of those companies. That makes stocks riskier than ETFs.

Individual stocks, though volatile in the short term, can perform remarkably well in the long run. Nevertheless, their performance depends on the market conditions. ETFs, on the other hand, include pooled bonds and/or stocks of companies. For instance, when you go for an ETF, you invest in a collection of stocks. ETFs are safer investments when compared to individual stocks.

With a single ETF, you may own several hundred stocks and sometimes may have an indirect stake in all the stocks held by the fund. It is an excellent and affordable way to acquire a variety of stocks.

ETFs are can have a particular focus, such as value-priced stocks, large firms, companies paying dividends, or those involved in some industries, like the financial sector. Some specialized ETFs give you a chance to earn higher returns. Moreover, ETFs offer the diversification, making them less volatile and less risky through their exposure to different assets.

ETFs are designed to replicate a specific market index, bringing about the passive management approach to fund management. For instance, S&P 500 index lists the top 500 publicly traded American companies, and it is one of the best gauges of the US equities market.

ETFs can be a good choice if you are about to begin your investment journey. Possibly, individual stocks are performing well, but ETFs offer a quick solution to diversified investment in bonds, stocks, or both. Having an Online share trading account with one of the best brokerage firms can help you start investing.