Financial Face-off: During this volatile stock market, is it better to buy individual stocks — or invest in an ETF?
The face-off Inflation is stuck in overdrive, a potential recession is hanging over our heads, and the Dow Jones Industrial Average DJIA and S&P 500 SPX have both taken a dive this year. Many people are feeling understandably jittery about their finances.
Some may be looking at their investments through a lens of uncertainty, wondering if they should change things up. One perennial question some have: is it better to pick and buy individual stocks or buy shares of an exchange-traded fund ? ETFs tend to have lower fees than mutual funds, though “the gap is closing” according to Investopedia, and ETFs are also typically more tax-efficient than mutual funds because they tend to generate fewer “taxable events,” says TurboTax.
If you invest in an ETF, and one company in the fund starts lagging — say a company like Peloton, which this time last year was at $96 and traded most recently at less than $8 — you’re not going to get wiped out by having too much exposure to any one stock, he said. “In investing that’s something that is desirable, that one problem investment doesn’t take down all of your holdings,” Plechner said.
Is my verdict best for you? On the other hand, while some ETFs are index funds that track the broader market, some can be very narrowly focused, which can make them as potentially risky as owning just a few individual stocks, some observers say. And the ability to trade frequently isn’t necessarily a good thing.
“Just like individual stocks, there are thousands of ETFs in the investment universe so making investment decisions may not be as simple and straightforward as perceived,” Wilkes said.
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