ETFs offer advantages over stocks in two situations. First, when the sector's stock returns are narrowly dispersed around the average, an ETF may be the best option. Second, if you can't gain an advantage through company knowledge, an ETF is your best option. If you're just starting to invest, you might be wondering if it's better to invest in stocks or ETFs.
Stocks can be a great investment in some circumstances, while ETFs may be better in others. However, for new investors, exchange-traded funds solve many problems and are a simple way to obtain attractive returns, making them an excellent starting point. You probably already know that a stock represents a fraction, or share, of the ownership of a specific company. An ETF, on the other hand, is a collection, or basket, of individual stocks, bonds, or other investments, all bundled together.
When you buy a share of an ETF, you own a fraction of that pool of investments. Investment decisions should be based on an assessment of your own personal financial situation, your needs, your tolerance for risk and your investment objectives. Even if your stock investments don't make a profit, you'll still make money with your other investments. Estimates based on past performance do not guarantee future performance and, before making any investment, you should analyze your specific investment needs or seek the advice of a qualified professional.
While ETFs are certainly useful investment vehicles, I don't think they're attractive enough to stop investing directly in stocks. The investment information provided in this table is for general informational and educational purposes only and should not be construed as financial or investment advice. Most investors want to create a diverse investment portfolio, meaning that they have invested in a variety of different assets.