Should I buy ETFs or Stocks? Comparing stocks vs ETFs to determine which is the better option for your investment style. I am not a licensed investment advisor and this article is not investment advice. This article may contain affiliate links.
Are you about to make your first investment and wondering if should you buy ETFs or individual stocks?
Good.
It’s good that you are starting to invest and it’s great that you are asking that question.
Because even though mutual funds have their advantages, ETFs and stocks are superior investment options in my humble opinion.
Fortunately, there is an extremely simple answer to determine if you should buy ETFs or stocks.
In this post, I will tell you the simple answer to help you decide on stocks vs ETFs.
Let’s dive in.
Should I Buy ETFs or Stocks?
To know if you should buy stocks or ETFs, you only need to answer one other question.
The question is: do you want to spend time researching and rigorously analyzing investments?
In short, it depends on how much time you want to put into investing.
If you want to spend time researching and rigorously analyzing stocks, you could earn higher returns by selecting individual stocks. If you want to manage a portfolio yourself, you should buy stocks instead of ETFs. Furthermore, if you are willing to take on the massive risk associated with choosing your own investments, by all means, make individual equites your preferred investment vehicle.
Alternatively, if you are looking for the most passive option, you should choose ETFs.
I mean, ETFs are low cost, low involvement, and have plenty of options available for all different types of investors.
So, if you have no interest in researching stocks and analyzing different investment options, then you should invest in ETFs or preferably an S&P 500 index fund.
If you want to focus on your career and you don’t have time to research stocks, go with ETFs or index funds.
Related article: High Dividend ETF Payers For Passive Income Investors
Are ETF Better Than Stock?
The right stock can generate a life-changing investment return.
However, selecting the right stock and holding it for long enough is very challenging.
For the average person who is not educated on investing, ETFs are better than stocks.
For a stock picker like Warren Buffett, individual stocks are the superior choice.
Again, it comes back to how much time you want to spend on investing.
Which Is Safer — ETF or Stock?
In all honesty, the safer option is likely ETFs.
But this only because it’s possible to pick the wrong stock and have it perform terribly enough that you could lose all your initial investment.
On the other hand, ETFs will provide you with instant diversification. Of course, there are specialized ETFs that follow specific sectors, such as a Bitcoin ETF. Those ETFs are still at the mercy of those sectors or commodities.
But for the most part, ETFs are the safer option to owning individual stocks. When you own stocks, it’s just more likely that you will pick the wrong stocks or sell at the wrong time.
Related article: Bitcoin ETF —How To Gain Exposure To Bitcoin With An ETF
It Depends On How Much Money You Plan On Investing
If you are investing with little money, it’s better idea to invest in ETFs first to grow you capital.
For example, if you are investing with only $1,000, it makes sense to buy an ETF to properly diversify.
It’s not really possible to properly diversify with $1,000. Frankly, even $10,000 to $20,000 is hardly enough to properly diversify.
On the other hand, if you are a skilled stock selector who is comfortable with risk, an individual stock could grow your wealth much faster.
In my view, unless you are an extremely skilled stock picker or unless you can commit to sticking to a lifelong strategy like dividend investing, you are better off investing in index fund or ETFs.
Should I Buy ETFs or Stocks?
So, if I am suggested that ETFs are a better option for most people, should I buy ETFs or stocks?
Personally, I still prefer individual stocks.
I am building my own ETF or index fund if you will.
But that’s only because I am willing to research and analyze stocks, take on risk, and since I have enough invested to diversify.
Also, I am a dividend income investor. I have a specific investment strategy that I will stick to.
As a dividend income investor, I like to be able to have full control over my dividend income.
I like the predictability of dividend growth stocks compared to the distributions that ETFs pay out.
Should I Buy ETFs or Stocks — Final Thoughts
Should I buy ETFs or stocks?
Personally, I prefer stocks because I like researching, I’m willing to accept the risk, and because I like the predictable dividend income growth of stocks compared to the distributions that ETFs pay.
For most people, though, ETFs are likely the better option.
ETFs provide diversification for low amounts of money, they are low cost, and they are completely passive.
Ultimately, it comes down to how much time you want to put into investing.
If you have a demanding job that prevents you from having enough time to properly research stocks, you should buy ETFs.
But if you are someone with the time and motivation to buy individual equities, you have the potential for greater returns.
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