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Stocks vs ETFs — Which Is Better to Invest in?
You’ve probably heard of stocks (representing part ownership or a company), but you might not have heard of ETFs. Short for exchange-traded funds, they’re also traded on the stock exchange but instead of just one part of a company, they’re a mix of assets.
“ETFs are a ‘basket’ of investments,” says Victoria Harris, co-founder of The Curve, a financial platform with courses and blogs that aim to simplify industry jargon and get you clued up on how to manage your money holistically — budgeting, saving and planning for financial freedom (aka the dream).
“Think about ETFs like a pick-n-mix of different things, like stocks, bonds or other assets — all wrapped in one package. When you buy an ETF, you’re buying a little of everything in that basket. Like an antipasto platter at a restaurant, you get to try a bit of everything without committing to just one dish.”
Stocks, also called ‘equity’, on the other hand, is a proportional stake in a corporation’s assets and profits. Ideally, your stock goes up in value and then you can sell it for more than you paid. Some companies also pay out dividends to stock owners.
Here, Harris breaks down which is best to invest in — ETF vs stock.
What Are the Factors to Consider?
Really, what you choose to invest in — ETF vs stock — depends on a few factors, including how much financial risk you’re okay with, research and effort you want to put into your investments and specific you want to be with your financial decisions.
“Stocks offer high potential returns but come with more risk and less diversification, while ETFs spread your money across many assets, lowering risk,” says Harris. “Stocks also require more research and effort, whereas ETFs are a low-maintenance option ideal for beginners or busy investors.”
“Finally, with stocks you can be more specific and invest directly in certain companies, while ETFs are most cost-effective and perfect for building a diversified, long-term portfolio.”
Why Might You Choose Stocks?
So when is it wise to choose stocks over ETFs? Harris says it makes sense if you’re looking for more control, higher potential returns or have a specific company you want to buy.
“Investing in stocks is riskier and requires more effort, but for those who like a hands-on approach and believe in specific companies, it can be a great way to grow wealth and feel more connected to their investments,” says Harris.
She summarises the main reasons you might opt for investing in stocks:
Target High Growth
“Individual stocks can offer bigger returns if you choose the right ones — like high growth, innovative technology companies,” says Harris. “With ETFs, your returns are averaged across a bunch of companies, so they might not grow as quickly.”
Belief in Specific Companies
“If you’re passionate about or believe in the success of a particular company, investing directly in its stock lets you take advantage of its growth and potential profits,” Harris says.
Customise Your Portfolio
“With stocks, you can tailor your investments to reflect your personal preferences, values or interests,” says Harris. “For example, only investing in renewable energy or tech companies. ETFs are pre-set baskets, so you have less control.”
Why Might You Choose ETFs?
On the other hand, investing in ETFs over stocks is a smart choice if you want simplicity, diversification and lower risk. Harris puts it: “If you’re looking for a low-risk, hands-off way to invest with less stress, ETFs are the way. They’re like the all-in-one solution for growing your money without overcomplicating things.”
Some reasons you’d choose to invest in ETFs instead of stocks are:
Instant Diversification
“With one ETF, you’re spreading your investment across many companies or assets, reducing the risk of losing money if one company performs poorly,” says Harris. “It’s an easy way to build a balanced portfolio without needing to buy multiple stocks.”
Lower Maintenance
“ETFs are ‘set it and forget it’. They track entire markets, sectors, or themes, so you don’t need to research and monitor individual companies like you would with stocks.”
Cost-Effective
“Buying a single ETF is usually cheaper than purchasing shares of many individual stocks to diversify. Plus, ETFs often have low fees — it’s a win, win!”
Great for Beginners
“ETFs simplify investing, making them ideal for those new to the game or not wanting to spend hours learning about stock-picking,” says Harris.
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