[TheEpochTimesApril192022](Rebecca Miller/Compiled by Epoch Times reporter Takasugi) When it comes tostockmarket conductsinvest, you will be faced with many choices. Considering and deciding what to invest in at a given time can be a challenging task. But it’s actually not that difficult, because with modern networking and technology, you can get almost all the information you might need.
In this guide, you will learn about ETFs andstock, and which option is best for you. Let’s start by understanding what they are.
Definition of stocks and ETFs
A stock is a share or a portion of a company’s property that is traded on an exchange or stock market. There are many stock markets in the United States, but the first one that comes to mind is usually the New York Stock Exchange, which is one of the most popular.
as ainvestThe stock you own will determine the dividends and dividends you receive from the company’s earnings, as well as your claim to its remaining assets. It also determines whether you, as a shareholder, have the right to vote on decisions affecting the company. Although for many retail investors (non-professionals), the interest in voting on corporate decisions is largely negligible.
ETF stands for Exchange Traded Fund, or shorthand for “Exchange Traded Portfolio”. It’s actually like a basket full of various securities. This basket of securities can include bonds, stocks, commodities, and many other securities. ETFs, like stocks of individual companies, can be bought and sold on the stock exchange.
ETFs can be divided into passive and active types, depending on whether they track an index like the S&P 500 or are actively managed by investment managers. Among the various types of ETFs, there are industry-based, contrarian, currency-based and leveraged, among others.
Stocks and ETFs have many similarities, but they also have very distinct differences.
Difference Between Stocks and ETFs
Individual stocks vs. baskets of securities: The main difference is that stocks are stocks from a single company; whereas ETFs contain stocks from multiple companies that are bundled together and packaged into a single trading item.
Risk: Investing in individual stocks is riskier than investing in ETFs. A momentary bad performance in a company can trigger a sharp drop in the value of its stock; and because ETFs are made up of diversified bundles of securities, poor performance in a single security in an ETF may not quickly reduce the value of the entire fund.
Liquidity: ETFs are slightly less liquid than individual stocks. Both are affected by the quality of the stocks involved (e.g. high-quality stocks in hand will be easier to close than penny stocks). ETFs are also affected by other factors, such as which securities the ETF is made of.
Cost: The transaction costs or fees of buying an ETF are higher than the cost of buying a single stock. However, ETFs have lower brokerage fees and operating cost ratios than stocks.
Management: Most ETFs are professionally monitored and managed. From this perspective, the price of individual stocks on the stock market may not require professional monitoring and help. On the other hand, professional help can be useful when deciding when to sell or buy individual stocks.
Similarities between stocks and ETFs
Similarities between stocks and ETFs are broadly categorized as follows:
• Profits from trading stocks and ETFs are taxed.
• Both are traded on the stock exchange, and their specific price indices change from time to time.
• They both offer many options and, if done right, can generate income streams for investors.
• Both can be bought or sold short on margin.
How to choose between stocks and ETFs
Some industry experts equate buying and selling individual stocks with a gamble. Even professionals struggle to consistently outperform the market. Individual stocks are affected by many unpredictable factors, including time of day, industry news, lack of information, economic and environmental factors, and market sentiment.
Investing in ETFs is considered a safer investment option than buying and selling individual stocks. If you invest in ETFs, the variety of securities in an index fund will help reduce your investment risk. Additionally, as an investor, you can choose an ETF that aligns with your goals: the stocks of selected companies can be grouped by different criteria such as size, industry details, or exchanges.
As such, investors without the ability to research and analyze individual company stocks may find it easier to choose an ETF due to its relative diversity, lower risk, and longer-term investment nature. ◇
This article only represents the views and opinions of the author, and the content is for general information reference only, without any recommendation or solicitation.The Epoch Times does not provide investment, tax, legal, financial, real estate planning or any otherpersonal financeSuggest. The Epoch Times does not guarantee the accuracy or timeliness of the content of the article.
Responsible editor: Ye Ziwei#