Investing in individual stocks & other ETFs | Vanguard (2024)

FAQs

Should I hold ETFs and individual stocks? ›

While having low fees and managing your own tax situation is good, it is better to have adequate diversification in your portfolio. If you don't have the funds to make this happen, an ETF or mutual fund is probably better for you—at least until you build up a solid base of stocks.

While each ETF offers a basket of stocks, buying multiple ETFs can offer diversification based on objectives. It's possible to buy shares in a growth-oriented ETF and allocate some of your capital toward an income ETF. However, not every investor needs to own multiple ETFs.

The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly across various sectors or industries, is much less risky than a portfolio of only two stocks.

Pros and Cons of Single Stock ETFs

Single stock ETFs are extremely speculative, short-term assets. These are day trading investments, given that they issue returns or losses at the end of each trading day. While you don't have to sell an SSE at the end of each day, these aren't intended for taking a long-term position.

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

If you have enough money to invest, are willing to accept the risk and want a high degree of involvement, individual stocks can be a good choice with which to build your equity investments. We suggest a 5% rule of thumb to avoid owning too much of a single investment.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

A three-fund portfolio is an investment strategy that involves holding mutual funds or ETFs that invest in U.S. stocks, international stocks and bonds. The strategy is popular with followers of the late Vanguard founder John Bogle, who valued simplicity in investing and keeping investment costs low.

SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.

There might be other practical considerations that limit the number of stocks. However, our analysis demonstrates that, whether you own ETFs, mutual funds, or a basket of individual stocks, a well-diversified portfolio requires owning more than 20-30 stocks.

How many stocks are in the Warren Buffett portfolio? ›

To invest in great businesses, you have to find them first. That's where Warren Buffett comes in… Berkshire Hathaway (BRK.B) has an equity investment portfolio worth approximately $280 billion.

Diversification: A well-diversified portfolio should include ETFs that cover different asset classes (stocks, bonds, commodities, etc.), sectors, industries, and geographical regions. This spreads risk and reduces the impact of any single investment on the overall performance.

Because of their wide array of holdings, ETFs provide the benefits of diversification, including lower risk and less volatility, which often makes a fund safer to own than an individual stock. An ETF's return depends on what it's invested in. An ETF's return is the weighted average of all its holdings.

The largest levered NVDA single name ETF is NVDL, with assets of over $2 billion and massive inflows this year. As NVDA stock has surged, this ETF has had a return for the year of over 175% (as of March 31, 2024), and a one-year return of 488% (source: Bloomberg).

Exchange-traded funds (ETFs) are ideal for beginning investors due to their many benefits, which include low expense ratios, instant diversification, and a multitude of investment choices. Unlike some mutual funds, they also tend to have low investing thresholds, so you don't have to be ultra-rich to get started.

Is It Worth Investing in Individual Stocks. Investing in individual stocks can save you money in fees and allow you to generate higher returns with your capital. But you have to research before investing in stocks and stay on top of your investments. Picking stocks requires more time and effort but can be rewarding.

Diversifying your portfolio in the stock market is a good idea for investors because it decreases risk by ensuring that no single company has too much influence over the value of your holdings. Owning more stocks confers greater stock portfolio diversification, but owning too many stocks is impractical.

ETFs owe their reputation for tax efficiency primarily to passively managed equity ETFs, which can hold anywhere from a few dozen stocks to more than 9,000. Although similar to mutual funds, equity ETFs are generally more tax-efficient because they tend not to distribute a lot of capital gains.

Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky than purchasing individual stocks directly. Because S&P 500 index funds or ETFs track the performance of the S&P 500, when that index does well, your investment will, too. (The opposite is also true, of course.)