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They are not.
Buying the right stocks will beat the right ETF's every time.
Buying the right ETF's will beat the wrong stocks everytime.
ETF probably gives you the best chance to hit a triple in a clutch situation.
Individual stocks give you the best chance to hit a grand slam to win the game.......or just strike out.
ETFs are the normal difficulty quest where you will probably complete it just fine but only get standard amount of XP, while individual stocks are the red, hard difficulty over your level quests. You might be able to beat it if you are really good and get a ton of XP, but chances are you will probably die.
I also have a job that isn't stock picking so I just don't have time to micromanage my portfolio. It's way easier to have a total fund and snp 500. I do have a few shares of companies I like like apple, mircosoft, disney, ect. But it is weay easier not to worry about it. I'm not going to ever beat the market.
Assuming you have the same percentage of stock as the ETF. In that scenario its prob logically better to just have the stock itself for more personalization but its simpler to just have the ETF, also no div’s unless the stocks also have them
Yup, greater chance at reward, but also higher risk as well. Overall buying correctly and diversifying is great. ETF decreases the risk as they tend to rebalance over time.
What will you do when the fund rebalances and the top 10 have swapped 5-8 holdings?
Some funds rebalance 4x a year and most funds will add and kick underlying stocks once per year
I am very lazy and honestly not great at evaluating companies. I will gladly pay $3-12/year per 10k invested to have my stocks put through some proven screens.
My time is worth more than that
So that's the value... That makes sense to me... Except, if an ETF rebalances I can just copy that and avoid the fee. Is there any added risk in terms of liquidity? I assume not as long as you stick with mainstream ETFs?
The real challenge would be trying to purchase the same stocks in an ETF with 100 or 500+ companies. It would also be difficult to weight these holdings in your portfolio - not all ETF's are equal weighted. It'd be near impossible, unless you made it a full time job.
Maybe, but will you be on your toes like that for the next 30-40 years? That could get exhausting.
There's also the tax issue with doing that.
You just keep buying an ETF, no taxes until much, much later down the line. You buy and sell individual stocks, you'll cap out your $3k pretty quick on the losers and pay for the winners.
When an ETF rebalances you don't pay tax (even if it's in a taxable)
When you rebalance you pay tax (if it's in a taxable, because you have to sell to rebalance)
You can avoid selling by rebalancing and just buying the underweight parts of your portfolio, but I agree that it’s not a great idea. I can’t imagine rebalancing 20+ individual stocks, geez.
If you don't have transaction fees, sure, but consider how many transactions you would have to make. Say you have 10k in VOO, right now 6.97% of it is AAPL, so $697, that's 3.77 shares. If the share of APPL in VOO drops by .1%, are you going to adjust and sell 6% of a APPL share to track the ETF? VOO is an extreme example because you would need to make hundreds of transactions a quarter, but even in ETFs with fewer holdings, that's probably dozens of probably fractional transactions. You'd basically lose more than the MER in the bid/ask spread, as you sell and buy small amounts.
How long are you investing for? 30 years? You are using that investment for like 40-50 years?predicting which companies would be doing good for 70+ years is very hard. And if you dont know how to read company financials or do a research you will definitely lose in long term. Individual stocks definitely has a higher reward but needs more work and you need to know what you are doing.
But etfs are more chill investing and you can just invest in voo and not really worry about much
Personally, I prefer individual stocks over ETFs, though I own both. I don't go chasing the underlying stocks of an ETF, With all the rebalancing, that's a fool's errand. Now, I will say this sub seems averse to individual stocks and that annoys me, makes it hard to find discussion on individual dividend stocks. It's frustrating, since this isn't the boogerhead subreddit. It's the dividend one. Where we talk about, you know, dividend stocks. Dividend ETFs do a job but adults interested in the stock market sure can handle individual dividend-bearing stocks.
It's a great example.
You could have made a lot of money with Enron AND keep it/lock it in, if you sold it when important technical metrics were broken. I.e. break of the 50 or 200 MA line (or any other technical metric that forces you to act; and you have act).
That was way before Enron went bankrupt in early 2001.
And well before the downward trend accelerated. During this downward trend many Wall Street firms and brokerage firms recommended Enron for buying as it was "cheap", a much lower P/E ratio.
Look back at any other growth stock and you will see this happening over and over again.
A stock portfolio requires some active management once a week, month or quarter or when technical levels are broken. This way you are keeping your money and not giving it all back.
Most retail investors won't actively manage their portfolio by rebalancing their account or sell lagging positions.
The OP should read "*The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk*" by Taylor Larimore.
The advantages of etfs are: cost efficiency, and periodic rebalancing.
Just the ease of it. Paying someone 0.1% to handle your investments and doing nothing beats constant buying and selling, readjusting, and keeping track of hundreds of tickers. I don't see an issue with your idea though if that's what you're into. On a yearly basis, instead of buying an etf with 100+ stocks you would need to activily manage your portfolio while they would do it for you for $100 for a $10,000 initial investment.
Thanks... I guess whenever I look at my ETFs the top holdings seem fairly stable. I didn't realize that there would be a significant amount of work mimicking them. But if it really is a lot of extra work then I wouldn't go out of my way to try it lol. I just like to know what I'm paying for.
You are correct, they don't change often and to be honest you could have had a similar return to sp500 if you had bought the top ten stocks sometime during the bull run of the last decade. Honestly for most people it would be due to the hands-offness it offers. Also I like to hold multiple etfs that give me different exposures, for example voo for sp500, qqqm for nasdaq, dgro for dividend growth, iusv and avuv for value. I do know there is a lot of overlap! but nevertheless it would be very hard for me to replicate it.
Well, VOO is just a low cost version of spy and spy has been around since 1993 and both follow the S&P 500 which has been around since 1957. So there is some track record there.
There is some history but we are comparing to things over 100 years old. I did correct to fund inspection, from conversion to ETF. However of note widespread use is post the ETF conversion in 2010, so no major down market.
You most likely do not have the money to even closely match an ETF by yourself. Cap weighted indexes have certain percentages of each stock. So with a small amount of money, you will need 5.2 shares of stock A. 2.3 shares of stock B, 0.1 shares of stock C and 0.08 shares of stock D, etc. Then you have to do a bunch of transactions yourself to keep the pertfolio balanced to meet the index.which means you have to look up every singe company in the index. The alternative is to pay the tiny fee that the etf charges
Yeah he was trying to wing it cuz he didn’t understand all the facts, intricacies and probably doesn’t understand investment risk thoroughly. Hopefully this forum enlightened him that his idea was rather silly.
Start reading about passive investing.
It's about risk and return.
The market as a whole grows about 7-10% a year, then why not track that market. Etfs allow you to do this, buying 3k+stocks yourself is undoable.
A lot of research suggest ppl have a hard time beating market returns over the long term. Even seasoned professionals.
Good luck
Why not both. I own ETFs for ex-USA stocks and i pick USA stocks myself. Very good solution for me for taxes and fees from exotic markets (I’m from Poland - don’t want to know, what are fees for byuing Nintendo stocks).
S&P500 has 500 stocks. That's 500 stocks you need to manually buy and rebalance every year or even quarter depending on the ETF you try and copy.
Can you do it? Yes. Would you save the expense ratio of the ETF? Yes. But is it worth the time?
Of course if this can be automated...
Cause if I want to deposit $100 a month to an S&P 500 ETF I would have to break that out to 500 individual stock trades, that’s insane. I don’t want to be that active… i have better things to do with my time than micro manage 500 stocks to mimic an index.
Loook at the long term returns. Many ETFs have outperformed the S&P. Many many many many stocks do not. Especially not for 3, 5 ,10+ years. Stocks are better for short term holding, usually. Unless you believe in a company’s growth long term. So holding some long pays off big time. But ETFs aren’t things you like really day trade with or hold onto for a week or even just a month or something unless you have like enough cash to where a 2-4% price hike or dip could net you like at least 5 or 6 figures for a month of holding or something like that
Ease, most drastically underestimate how much work is necessary to manage yourself. At low AUM it is clearly better to pool money and have a small team do it for everyone.
ETFs that are balanced by market cap allow you to tap into the wisdom of "smart money". Smart money allocated their resources into stocks according to their calculated value within the ETF and you get to ride along without any effort whatsoever.
Right, I figure risk mitigation... and I also wouldn't want to pick myself. I meant, why not look at the top holdings and mimic it? But other answers have suggested that is a lot more work than I realized.
ETFs provide a greater exposure and diversification to minimize risk spread over numerous stocks rather than one. If you invest in an etf there’s a chance some of the underlying stocks may go up while others go down over a time spreading risk over many stocks. As opposed to investing in the individual stock. Though greater risk comes greater reward
The real answer to your question is from the 1950’s and it’s called Modern Portfolio Theory.
I highly recommend MIT OpenCourseWare Financial Theory starting from this lecture and the following two:
https://youtu.be/tL7Lcl90Sc0?si=KbAGCt8zU2iJfuDL
The short answer is that individual companies have their own idiosyncratic risks, and buy purchasing multiple stocks you become only truly susceptible to the market risk that can’t be factored out by owning a larger part of the market. But how do you choose how much of each stock to invest in to maximize expected rate of return for amount of risk? The answer to that comes down to solving a quadratic optimization problem.
You won’t be disappointed by those course lectures
From a Warren Buffet perspective, ETF’s are not better since you’ll also buy losers. Picking individual stock (winners) might take some time and effort but (when properly diversified) will probably outperform ETF’s. You’ll still encounter losses/losers, but when picked and managed well should beat these ETF’s.
For his current holdings, yes. However, when he dies, he has instructed that [90 percent of his estate be invested in an S&P 500 ETF](https://www.cnbc.com/2019/02/26/warren-buffett-wants-90-percent-of-his-estate-invested-in-index-funds.html)
They are easier to buy on a limited budget. If you have 500 USD to invest in a month, you can buy an ETF from that amount and be diversified. However from that amount you can buy 1.5 Microsoft or 2.5 Apple stocks. Hard to diversify into the SP500 this way.
However if you have a billion to invest, you can do it comfortably by buying the individual stocks.
you don’t have to dedicate your life to managing your stocks.
that’s why etf better.
on the other hand, if you want to dedicate your life… then avoid etf.
Stocks are better if you have/want to take the time to manage them. One JPow hawkish speech can take you down a few rungs if you arent careful. ETFs, same but to a lesser degree, then you have the dividend factor, some of us need to get paid.
Diversification. Should you own the top 5 stocks in the S&P and one has a bad report you could see a major loss in funds should you need to use them. ETFs typically hold many shares of stocks or indices that allow the ETF to weather a storm while providing upside. It's far easier to allow the experts to decide the ebbs & flows of the markets than trying to weed through the cornucopia of information out there to see which stock is going to outperform & for how long.
It's not inherently better, just easier to buy ETFs than duplicating the holdings . Simply buying the underlying stocks is sometimes called "direct investing" and something that my robo-advisor offers once you have $100k with them. The main advantage is tax loss harvesting on individual stock level which is not possible within an ETF because legally ETFs cannot pass those tax losses on to investors.
Buying the weight of the benchmark index is possible, but you will need a lot of capital to be able to keep the weights on par with the benchmark over time. You will also need to manage your positions actively, probably on a daily basis.
For 95% of the population, it's not worth the hassle
Going the individual route makes sense if you're invested in something and micromanage it. ETF's allow you a little more comfort at a cost, as someone else manages what is in, what is performing etc.
ETFs offer structural tax advantages over trading individual stocks related to capital gains distributions as well. You can easily Google the info if you want details.
Not really better but different benefits. Benefit of etfs is safety from diversity and the fact that you can just hold them and collect the divs. Benefits of most stocks is more growth but more risk
For income investors who want predictable cash flow A majority of ETFs pay variable distributions.. While buying a historical dividend growth stock the distributions are predictable and increase every year historically. The key to dividend investing is to not concentrate your portfolio into too few stocks in order to diversify your risk.
Welcome to r/dividends! If you are new to the world of dividend investing and are seeking advice, brokerage information, recommendations, and more, please check out the Wiki [here](https://www.reddit.com/r/dividends/wiki/faq). Remember, this is a subreddit for genuine, high-quality discussion. Please keep all contributions civil, and report uncivil behavior for moderator review. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/dividends) if you have any questions or concerns.*
They are not. Buying the right stocks will beat the right ETF's every time. Buying the right ETF's will beat the wrong stocks everytime. ETF probably gives you the best chance to hit a triple in a clutch situation. Individual stocks give you the best chance to hit a grand slam to win the game.......or just strike out.
I like the analogy.
Its a stupid analogy
That’s why I like it
Buying individual stocks is gambling. That’s the only analogy That you need
Buying anything is gambling.
Uhhhh no not at all. Trying to beat the market is a negative sum game. Owning the market is a positive sum game. Very different
Is that why all those folks jumped out of tall buildings in 1929? Or ate a bullet?
I never said to put your entire net worth in the market. Maybe they were over-leveraged? Please learn MPT -CFA
You did say positive sum game.
Well said sir. Bravo 👏
In football terms please
ETFs are your reliable 5-10 yard completions that will move the sticks. Individual stocks are your Hail Mary plays
I’m not following. Anyway you can convert this analogy to video games?
ETFs are the normal difficulty quest where you will probably complete it just fine but only get standard amount of XP, while individual stocks are the red, hard difficulty over your level quests. You might be able to beat it if you are really good and get a ton of XP, but chances are you will probably die.
I’m not a gamer, can you explain this in terms of welding.
I’m not a football fan, gamer, or welder. Someone explain in terms of … *insert hobby* lol
Individual Stocks = Arc Voltage. ETFs = The Bond
And options might just be the Leroy Jenkins of stock market.
ETFs are "Pac-Man." "Individual Stocks are Grand Theft Auto."
I also have a job that isn't stock picking so I just don't have time to micromanage my portfolio. It's way easier to have a total fund and snp 500. I do have a few shares of companies I like like apple, mircosoft, disney, ect. But it is weay easier not to worry about it. I'm not going to ever beat the market.
But if you own *all* of the individual stocks, you'll have the same combination of the "right" and "wrong" stocks that constitute the ETF.
Assuming you have the same percentage of stock as the ETF. In that scenario its prob logically better to just have the stock itself for more personalization but its simpler to just have the ETF, also no div’s unless the stocks also have them
Yup, greater chance at reward, but also higher risk as well. Overall buying correctly and diversifying is great. ETF decreases the risk as they tend to rebalance over time.
What ETFs do you recommend?
What will you do when the fund rebalances and the top 10 have swapped 5-8 holdings? Some funds rebalance 4x a year and most funds will add and kick underlying stocks once per year I am very lazy and honestly not great at evaluating companies. I will gladly pay $3-12/year per 10k invested to have my stocks put through some proven screens. My time is worth more than that
So that's the value... That makes sense to me... Except, if an ETF rebalances I can just copy that and avoid the fee. Is there any added risk in terms of liquidity? I assume not as long as you stick with mainstream ETFs?
The real challenge would be trying to purchase the same stocks in an ETF with 100 or 500+ companies. It would also be difficult to weight these holdings in your portfolio - not all ETF's are equal weighted. It'd be near impossible, unless you made it a full time job.
Yes, that's the value. I'm happy to pay 0.1% to let someone else do all the work
Maybe, but will you be on your toes like that for the next 30-40 years? That could get exhausting. There's also the tax issue with doing that. You just keep buying an ETF, no taxes until much, much later down the line. You buy and sell individual stocks, you'll cap out your $3k pretty quick on the losers and pay for the winners.
ETFs rarely hold a small number of stocks so it’s trying to track 20+ holdings.
Also don’t forget the taxes that come with capital gains, when an etf rebalances you never recognize gains because you hold the etf
When an ETF rebalances you don't pay tax (even if it's in a taxable) When you rebalance you pay tax (if it's in a taxable, because you have to sell to rebalance)
You can avoid selling by rebalancing and just buying the underweight parts of your portfolio, but I agree that it’s not a great idea. I can’t imagine rebalancing 20+ individual stocks, geez.
Rebalance doesn’t always guarantee paying taxes. What if everything you sell is at a loss lol. You get some tax benefits there.
If you don't have transaction fees, sure, but consider how many transactions you would have to make. Say you have 10k in VOO, right now 6.97% of it is AAPL, so $697, that's 3.77 shares. If the share of APPL in VOO drops by .1%, are you going to adjust and sell 6% of a APPL share to track the ETF? VOO is an extreme example because you would need to make hundreds of transactions a quarter, but even in ETFs with fewer holdings, that's probably dozens of probably fractional transactions. You'd basically lose more than the MER in the bid/ask spread, as you sell and buy small amounts.
The issue is taxes.
Youre right. I have anxiety and ocd so my porfolio is 100% etf. At least a sleep well at night
How long are you investing for? 30 years? You are using that investment for like 40-50 years?predicting which companies would be doing good for 70+ years is very hard. And if you dont know how to read company financials or do a research you will definitely lose in long term. Individual stocks definitely has a higher reward but needs more work and you need to know what you are doing. But etfs are more chill investing and you can just invest in voo and not really worry about much
Personally, I prefer individual stocks over ETFs, though I own both. I don't go chasing the underlying stocks of an ETF, With all the rebalancing, that's a fool's errand. Now, I will say this sub seems averse to individual stocks and that annoys me, makes it hard to find discussion on individual dividend stocks. It's frustrating, since this isn't the boogerhead subreddit. It's the dividend one. Where we talk about, you know, dividend stocks. Dividend ETFs do a job but adults interested in the stock market sure can handle individual dividend-bearing stocks.
Name the top 5 stocks from 1990, or even 2000.
Enron!
It's a great example. You could have made a lot of money with Enron AND keep it/lock it in, if you sold it when important technical metrics were broken. I.e. break of the 50 or 200 MA line (or any other technical metric that forces you to act; and you have act). That was way before Enron went bankrupt in early 2001. And well before the downward trend accelerated. During this downward trend many Wall Street firms and brokerage firms recommended Enron for buying as it was "cheap", a much lower P/E ratio. Look back at any other growth stock and you will see this happening over and over again. A stock portfolio requires some active management once a week, month or quarter or when technical levels are broken. This way you are keeping your money and not giving it all back. Most retail investors won't actively manage their portfolio by rebalancing their account or sell lagging positions. The OP should read "*The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk*" by Taylor Larimore. The advantages of etfs are: cost efficiency, and periodic rebalancing.
Just the ease of it. Paying someone 0.1% to handle your investments and doing nothing beats constant buying and selling, readjusting, and keeping track of hundreds of tickers. I don't see an issue with your idea though if that's what you're into. On a yearly basis, instead of buying an etf with 100+ stocks you would need to activily manage your portfolio while they would do it for you for $100 for a $10,000 initial investment.
Just fyi, 0.1% would be $10 on $10,000, not $100.
Thanks for fixing! Sounds even more ridicilous now
Thanks... I guess whenever I look at my ETFs the top holdings seem fairly stable. I didn't realize that there would be a significant amount of work mimicking them. But if it really is a lot of extra work then I wouldn't go out of my way to try it lol. I just like to know what I'm paying for.
You are correct, they don't change often and to be honest you could have had a similar return to sp500 if you had bought the top ten stocks sometime during the bull run of the last decade. Honestly for most people it would be due to the hands-offness it offers. Also I like to hold multiple etfs that give me different exposures, for example voo for sp500, qqqm for nasdaq, dgro for dividend growth, iusv and avuv for value. I do know there is a lot of overlap! but nevertheless it would be very hard for me to replicate it.
Individual stocks come and go, ETFs live forever. (At least the good ones)
1976 vanguard formed. Let us be honest about the history of the approach.
Well, VOO is just a low cost version of spy and spy has been around since 1993 and both follow the S&P 500 which has been around since 1957. So there is some track record there.
There is some history but we are comparing to things over 100 years old. I did correct to fund inspection, from conversion to ETF. However of note widespread use is post the ETF conversion in 2010, so no major down market.
And SPLG is just a cheaper version of SPY.
You most likely do not have the money to even closely match an ETF by yourself. Cap weighted indexes have certain percentages of each stock. So with a small amount of money, you will need 5.2 shares of stock A. 2.3 shares of stock B, 0.1 shares of stock C and 0.08 shares of stock D, etc. Then you have to do a bunch of transactions yourself to keep the pertfolio balanced to meet the index.which means you have to look up every singe company in the index. The alternative is to pay the tiny fee that the etf charges
I don’t think he was talking about buying entire etfs, think he just meant buying too 10 holdings or some of the top ten
Yeah he was trying to wing it cuz he didn’t understand all the facts, intricacies and probably doesn’t understand investment risk thoroughly. Hopefully this forum enlightened him that his idea was rather silly.
I don’t think he was talking about buying entire etfs, think he just meant buying too 10 holdings or some of the top ten
Start reading about passive investing. It's about risk and return. The market as a whole grows about 7-10% a year, then why not track that market. Etfs allow you to do this, buying 3k+stocks yourself is undoable. A lot of research suggest ppl have a hard time beating market returns over the long term. Even seasoned professionals. Good luck
Why not both. I own ETFs for ex-USA stocks and i pick USA stocks myself. Very good solution for me for taxes and fees from exotic markets (I’m from Poland - don’t want to know, what are fees for byuing Nintendo stocks).
S&P500 has 500 stocks. That's 500 stocks you need to manually buy and rebalance every year or even quarter depending on the ETF you try and copy. Can you do it? Yes. Would you save the expense ratio of the ETF? Yes. But is it worth the time? Of course if this can be automated...
For diversification
Risk mitigation.
Cause if I want to deposit $100 a month to an S&P 500 ETF I would have to break that out to 500 individual stock trades, that’s insane. I don’t want to be that active… i have better things to do with my time than micro manage 500 stocks to mimic an index.
Loook at the long term returns. Many ETFs have outperformed the S&P. Many many many many stocks do not. Especially not for 3, 5 ,10+ years. Stocks are better for short term holding, usually. Unless you believe in a company’s growth long term. So holding some long pays off big time. But ETFs aren’t things you like really day trade with or hold onto for a week or even just a month or something unless you have like enough cash to where a 2-4% price hike or dip could net you like at least 5 or 6 figures for a month of holding or something like that
Instant diversification, and simplicity.
ETF has diversity a single stock doesn’t
Ease, most drastically underestimate how much work is necessary to manage yourself. At low AUM it is clearly better to pool money and have a small team do it for everyone.
ETFs that are balanced by market cap allow you to tap into the wisdom of "smart money". Smart money allocated their resources into stocks according to their calculated value within the ETF and you get to ride along without any effort whatsoever.
Easy, risk mitigation. Why buy 1 stock when you can get a bunch... especially when you're like me and absolutely suck at picking stocks.
Right, I figure risk mitigation... and I also wouldn't want to pick myself. I meant, why not look at the top holdings and mimic it? But other answers have suggested that is a lot more work than I realized.
Buy KO, XOM, PG, AAPL, CAT, JNJ, ADM, AXP little O.....buy regularly and forget everything else.
[удалено]
Wow. I always assumed there was more than the top holdings but didn't realize it was quite that many.
voo and chill. set it and forget it
They aren't. Individual stocks are best, we just all suck at picking them so average growth is best.
ETFs provide a greater exposure and diversification to minimize risk spread over numerous stocks rather than one. If you invest in an etf there’s a chance some of the underlying stocks may go up while others go down over a time spreading risk over many stocks. As opposed to investing in the individual stock. Though greater risk comes greater reward
Diversification (lower risk) from any one company being a turd in the punchbowl.
The real answer to your question is from the 1950’s and it’s called Modern Portfolio Theory. I highly recommend MIT OpenCourseWare Financial Theory starting from this lecture and the following two: https://youtu.be/tL7Lcl90Sc0?si=KbAGCt8zU2iJfuDL The short answer is that individual companies have their own idiosyncratic risks, and buy purchasing multiple stocks you become only truly susceptible to the market risk that can’t be factored out by owning a larger part of the market. But how do you choose how much of each stock to invest in to maximize expected rate of return for amount of risk? The answer to that comes down to solving a quadratic optimization problem. You won’t be disappointed by those course lectures
From a Warren Buffet perspective, ETF’s are not better since you’ll also buy losers. Picking individual stock (winners) might take some time and effort but (when properly diversified) will probably outperform ETF’s. You’ll still encounter losses/losers, but when picked and managed well should beat these ETF’s.
For his current holdings, yes. However, when he dies, he has instructed that [90 percent of his estate be invested in an S&P 500 ETF](https://www.cnbc.com/2019/02/26/warren-buffett-wants-90-percent-of-his-estate-invested-in-index-funds.html)
They are easier to buy on a limited budget. If you have 500 USD to invest in a month, you can buy an ETF from that amount and be diversified. However from that amount you can buy 1.5 Microsoft or 2.5 Apple stocks. Hard to diversify into the SP500 this way. However if you have a billion to invest, you can do it comfortably by buying the individual stocks.
you don’t have to dedicate your life to managing your stocks. that’s why etf better. on the other hand, if you want to dedicate your life… then avoid etf.
Stocks are better if you have/want to take the time to manage them. One JPow hawkish speech can take you down a few rungs if you arent careful. ETFs, same but to a lesser degree, then you have the dividend factor, some of us need to get paid.
Diversification. Should you own the top 5 stocks in the S&P and one has a bad report you could see a major loss in funds should you need to use them. ETFs typically hold many shares of stocks or indices that allow the ETF to weather a storm while providing upside. It's far easier to allow the experts to decide the ebbs & flows of the markets than trying to weed through the cornucopia of information out there to see which stock is going to outperform & for how long.
If you are buying 500 different stocks, that's 500 transactions. Which could be a lot more in comissions than the etf TER.
It's not inherently better, just easier to buy ETFs than duplicating the holdings . Simply buying the underlying stocks is sometimes called "direct investing" and something that my robo-advisor offers once you have $100k with them. The main advantage is tax loss harvesting on individual stock level which is not possible within an ETF because legally ETFs cannot pass those tax losses on to investors.
Buying the weight of the benchmark index is possible, but you will need a lot of capital to be able to keep the weights on par with the benchmark over time. You will also need to manage your positions actively, probably on a daily basis. For 95% of the population, it's not worth the hassle
It's not?
Idiosyncratic risk
Diversification and risk exposure
Going the individual route makes sense if you're invested in something and micromanage it. ETF's allow you a little more comfort at a cost, as someone else manages what is in, what is performing etc.
Is OP scottish?
ETFs offer structural tax advantages over trading individual stocks related to capital gains distributions as well. You can easily Google the info if you want details.
Not really better but different benefits. Benefit of etfs is safety from diversity and the fact that you can just hold them and collect the divs. Benefits of most stocks is more growth but more risk
For income investors who want predictable cash flow A majority of ETFs pay variable distributions.. While buying a historical dividend growth stock the distributions are predictable and increase every year historically. The key to dividend investing is to not concentrate your portfolio into too few stocks in order to diversify your risk.