Stocks vs. ETFs: Which Should You Invest In?

Generally, people get confused while investing their money in the share market, especially when they have to choose between Stocks and ETFs. Well, choosing between these two totally depends upon one’s risk-taking capabilities.

Stocks give you the benefits of having physical ownership of the security, while ETFs manage the risks by providing you with an opportunity to create a diversified portfolio.

So, if you are confused which one you choose, then you are in the right place. Here, we have explained both the terms, including their Pros and Cons. So, let’s get started with the guide.

Table of Contents

What are Stocks? Pros & Cons

Stocks are the thing that gives you company ownership or per cent of the company when you buy their shares. Yes, stocks are generally known as equities or shares. Whenever you purchase a company stock, it gives you a portion of ownership in that particular company.

Buying and selling stocks is one of the most common investment vehicles that traders use in different exchanges all around the world. But, it also has some pros as well as cons that will help you understand whether or not you need to invest in Stocks or not. So, let’s dive into it:

Pros of Investing in Stocks:

Compared to any other investment, there are high return chances if the company performs better. But to get a higher return, you need to invest your money in the best and leading companies that have substantial capital appreciation and dividends.
By acquiring a company’s stocks, you have ownership and voting right. Yes, you will be treated as a board member and have every right to give your opinion on the company’s operations.
You can select diversified stocks from various industries, sectors, and PSUs. By doing this, you will not have to depend on any particular sector. This also reduces the risk factors.
You can easily buy and sell stocks, and there is no difficulty involved in that. But you need to do this during trading hours.
There is more transparency and information available for the companies in which you are publicly trading. This will help you understand whether you want to hold their stocks for the long term or not.

Cons of Investing in Stocks:

The market is very volatile, and the stock prices can fluctuate significantly depending on market trends.
Market timing is the main hindrance.
There is no certain period or guarantee that you will get dividends every year. If the company doesn’t make a profit, it will also not get dividend earnings.
The market depends upon information overload and noise. The stock market can easily crash or become bullish because of any major financial news.

What are ETFs? Pros & Cons

Exchange-traded funds, generally known as ETFs, are basically investment funds that are a mixture of stocks, bonds, commodities, or other securities and trades in stocks.

If you don’t have much knowledge or time to check and invest in companies, you can start investing in ETFs as they will start investing on your behalf, and the risk factors are also very low compared to stock trading. So, let’s check out some of the pros and cons to decide which one is more beneficial:

Pros of Investing in ETFs:

ETFs have a diversified portfolio, and you have many things in your basket just by investing a much lower amount than stocks.
It provides better liquidity options as it trades throughout the trading day, which makes it easy for users to enter or exit the market without facing price discrepancies.
The whole holding pattern is transparent to users nothing is hidden.
It is very flexible compared to normal stock trading. You can easily start buying and selling ETF shares on an intraday basis. But, you have to implement some strategies such as stop loss or trageted price.

Cons of Investing in ETFs:

There are some tracking errors users face underlying the index, and also, chances are there that you may see discrepancies between the ETF performance and the index it seeks to replicate.
Trading costs to low, but the brokerage commissions are very high compared to stocks.
The market is too volatile.
There are risky overlaps and concentrations of holdings in an investor’s portfolio.

Which Should You Invest In And Why?

Choosing individual stocks or ETFs depends on anyone’s risk-taking abilities and goals. Both the options are good in their own place. But, as a personal investor, I prefer investing in stocks rather than ETFs.

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So, that’s all we have for you on Stocks vs ETFs. It’s our hope that this guide has helped you. For more info, comment below.