There are so many ways you can put your money to work for you, from trading options vs stocks to investing in bonds vs stocks. But investors who want a more hands-off approach with built-in diversification tend to be drawn toward exchange-traded funds (ETFs).

We understand the appeal. You can let the fund do the heavy lifting of choosing stocks and managing the portfolio, you just rake in the profits. The problem is, profits tend to be fairly low – especially compared to what you COULD earn by investing in individual stocks.

We’ll compare investing in ETFs vs stocks below to help you get a sense of which approach makes the most sense for your financial goals, time availability, and risk tolerance.

The short answer is passive investors are probably better off with ETFs, while active investors trying to earn higher returns will need to be more active in their investments. That doesn’t mean you need to spend hours in front of a screen on a daily basis, though. You just need the right stock analysis software, like VectorVest.

Our system tells you which stocks to buy (and why) and when to sell them, all at a glance.

It has outperformed the S&P 500 index by 10x over the past 20 years and counting, all while saving investors time and stress. Get a free stock analysis today!

What are ETFs vs Stocks?

You might already have some semblance of what stocks vs ETFs are and how they’re related, but let’s take a step back and start with the basics just in case. What are ETFs vs stocks?

Overview of Stocks

Buying a stock is just like buying ownership in a company. It’s a direct investment. You’re putting your money behind a business with the expectation that the share price will rise and you’ll profit.  That could be through capital gains or, in some cases, dividends. Sometimes it’s both!

Individual stocks give you full control over your returns – at least, as much control as you can have in an investment! That’s not to say you’re guaranteed a return. However, you do get to cut out stocks that are underperforming and weigh your portfolio heavily in favor of winners.

You can hand-pick companies you believe in, time your entries and exits, and build your own portfolio based on your goals. Sure, it’s a lot more work than simply handing your money to a financial advisor and letting them do everything on your behalf – but the upside is much higher.

Overview of ETFs

So what is the other half of the stocks vs ETFs debate all about? These funds are baskets of assets – typically stocks but sometimes bonds or other securities. They trade on an exchange just like a regular stock, but you’re not necessarily investing in an individual company.

Instead, ETFs are a passively managed group of holdings. You’re buying into a theme, index, or sector that someone else has built. There are obvious benefits to this approach.

First and foremost you’re getting instant diversification with one click. But perhaps more importantly you’re saving a lot of time since you aren’t analyzing 5, 10, or even 20 companies to build your portfolio. You’re basically buying someone else’s portfolio.

This can be a double-edged sword, though. What you get in convenience you sacrifice in control. There are going to be a fair share of underperforming assets in any ETF, and these will hold you back from maximizing returns on your money. ETF fees can eat into your profits, too.

We’ll get into this more in a moment, but choosing between investing in ETFs vs stocks ultimately comes down to what matters most to you. ETFs are great for a hands-off investment, but stocks are better for the active investor seeking alpha.

Similarities Between Stocks and ETFs

There are actually quite a few similarities between ETFs vs stocks, some of which you might be picking up on already. They’re both publicly traded and bought or sold through brokerage accounts. Each offers price appreciation potential and, in some cases, dividends.

Plus, you can use many of the same tools to analyze them – charts, volume data, technical indicators, and even the best investment app for beginners. Both are subject to market volatility, too. But the differences between stocks vs ETFs is ultimately what you’re here to learn about.

Differences Between Stocks and ETFs

The biggest difference is control. You dictate where your money goes when investing in stocks. You do the same with ETFs – but only to a certain extent. You’re handing most of the control to the fund’s manager or index structure.

In this sense, your performance depends on how well the entire group of stocks does – not just one winner. ETFs also tend to be less volatile because they’re diversified by design. But as you might already know, the most volatile stocks are often where the profits can be found!

Stocks offer more concentrated exposure. That means your upside is larger when things go right. The opposite is true too, though. When things take a turn, your downside is steeper.

It’s a simple tradeoff: control and upside potential with stocks vs convenience and built-in diversification with ETFs. Let’s get into what really matters to help you choose between investing in ETFs vs stocks – returns, risk, and your time.

Stocks vs ETFs: Is it Better to Invest in ETFs or Stocks?

Choosing between stocks vs ETFs ultimately comes down to your goals with investing. Are you trying to prepare for retirement with as little effort as possible? You might be able to get there with ETFs.

On the other hand, if you want to retire a few years earlier, supplement existing income from a full-time job, or make a living through your investments alone, stocks are going to be your best bet.

You can simplify this decision by figuring out the returns you want to earn, how much time you’re willing to commit, and how much control you want over risk.

Profit Potential

ETFs rarely outperform the market. In fact, most of them are the market. You’re settling for average (by design) when you buy an S&P 500 ETF, for instance. There’s nothing wrong with that if you’re fine settling for slow, steady growth.

However, building wealth faster is going to require a more active approach. You can’t afford to have any losers in your portfolio holding down your returns, but that’s almost a guarantee with ETFs.

Investing in individual stocks gives you a much higher upside. A single well-timed trade in a strong momentum stock can return more in a week than an ETF might deliver all year. That’s the power of concentration over diversification. 

Of course, this sounds good in theory but only works if you know what to buy, when to buy it, and when to sell it. This goes back to setting yourself up for success with the VectorVest stock advisory.

Time Commitment

The tradeoff for higher returns with stocks is the time spent looking for and analyzing opportunities and then, managing your position. You’ve got to research companies, screen opportunities, and know how to read technical setups.

ETFs, on the other hand, are mostly set-it-and-forget-it. You just need to figure out what sort of funds align with your goals and buy. The fund manager does the rest.

But, managing stocks doesn’t mean you need to be glued to your screen all day. That’s a huge misconception we see beginner investors make. You just need the right stock trading system automating your decision-making.

Not only can this save you time, but it also takes a lot of human error and emotion out of the equation. Translation: more free time, less stress, higher returns!

Risk Management

There’s no sugarcoating it: stocks carry more risk. You’re exposed to single-company events like bad earnings, poor guidance, or sector volatility. ETFs smooth out those risks by spreading them across dozens or hundreds of holdings.

That doesn’t mean ETFs are risk-free, though. You’re exposed to a different kind of risk, one we’re far more afraid of as seasoned investors: opportunity cost. You’re missing out on meaningful upside when you spread your money too thin.

That said, managing risk in individual stocks becomes a lot more straightforward if you’ve got a system that filters out weak stocks and gives you clear exit signals. It’s also a lot less stressful when you use stop losses to automatically sell stocks once they dip below a certain price.

So, Should You Invest in Stocks or ETFs?

That more or less does it for our comparison of stocks vs ETFs. There’s no right or wrong answer as to which is better – it all comes down to your goals and preferences.

If you want as little involvement as possible and don’t mind settling for lower returns than you could otherwise earn, ETFs might be a compelling choice. However, those who want to take full control of their financial future should invest in individual stocks.

Because as you’re likely starting to realize, all the potential downsides of investing in single stocks can be mitigated through the right stock picker app – like VectorVest.

Set Yourself Up For Success With VectorVest

VectorVest takes the guesswork out of stock picking and portfolio management by telling you what to buy, when to buy it, and when to sell it – all at a glance. The system has beaten the S&P 500 index by 10x over the past 20+ years, all while saving investors time and stress.

It distills complex technical indicators and fundamental data into a proprietary stock rating system, and you’re given all the insights you need to make calculated, emotionless decisions in 3 ratings: Relative Value (RV), Relative Safety (RS), and Relative Timing (RT).

Together, these make up our VST score, a simple number that tells you whether a stock is a good buy right now. Everything sits on a scale of 0.00-2.00 with 1.00 being the average, making interpretation quick and easy.

Plus, you gain access to a wide array of pre-curated stock picks on a daily basis so you’re never chasing your next trade – we bring opportunities to you on a daily basis.

So, why would you settle for average when you could have better performance without the risk and time commitment? Let VectorVest guide your next move.

Final Words on Investing in ETFs vs Stocks

We hope this detailed breakdown of investing in ETFs vs stocks has left you feeling clear and confident on which approach makes the most sense for you. Despite the hands-off appeal of ETFs, it’s hard to ignore the higher returns and control you get with stocks.

That’s why we always encourage investors, whether they’re just starting out or are looking to improve performance, to at least try trading individual stocks using the VectorVest system and see firsthand how simple and effective it can be.

You don’t need to be an expert to outperform the market. You just need the right tools in your arsenal. Get started with VectorVest today!