ETFs and Stocks
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ETFs and stocks serve different investment goals of stock traders. Here’s a peek into what makes them different, and also the few similarities.
Stock trading is all about making choices based on what your investing goals are. Apart from the choice between short term and long term trading, there is the fundamental decision to make regarding what asset to purchase. Introducing ETFs and Stocks ETFs (exchange traded funds) give you access to a range of stocks. When you buy an ETF, you don’t buy one stock but a collection of stocks. If you want investment having growth potential, you can invest in a collection of these stocks by investing in an ETF, rather than just a single stock. What a stock basically does is give you ownership in a company. So you get a share of the profits and assets of the company. The ETF just combines various stocks. And it could therefore track an index. Just remember a few facts while choosing between an ETF and a stock: ETF
An ETF gives you exposure to many securities that are present in the ETF collection. There is, for example, an S&P 500 ETF, and investing in it would give you exposure to all the stocks making up the S&P 500 Index. So when you hold all these stocks in the S&P 500 Index, you are able to diversify significantly. That means the risk gets spread out or balanced and you get to face less of it. There may be one stock that isn’t performing well, but other stocks could be performing well and these could balance out the low performing ones.
So you find the overall ETF’s price being stabilized. Stock
On the contrary, when you buy one stock you are actually buying a share of just one company. If the value of that stock declines, the entire portfolio you hold declines in its value unless you have other stocks in your portfolio. And if you want to get your share of more companies, you would have to buy separate stocks.
Similarities between ETFs and Stocks One of the major similarities ETFs and stocks have is that they both trade on the major stock exchanges such as the Nasdaq or NYSE. The price you have to pay for an ETF or a stock is based on its current market price. While you do find commission free trading offered by certain broker dealers under some conditions, usually you are charged a commission by the brokerage through whom you are trading, for every stock or ETF bought. Fundamental Points of Difference Where the differences come is in the criteria that determine what the price of a stock and an ETF should be. An ETF’s market price is dependent on the worth of the total collection of
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securities that are included in it, at a particular time. When it comes to a stock’s value, there are also the company’s level of success and the investors’ expectations of the company that come into play. You also need to percentage of the ratio may reduce multiple stocks for
pay the expense ratio while buying an ETF. The expense ratio is the assets of an ETF that are set apart for managing it. While the expense the returns that an ETF earns for its investors, you get ownership of a one-time payment of commission.
On the other hand, buying just one stock independently requires you to pay a commission. So if you want to include multiple stocks in your portfolio, you need to pay commission for each stock you pay. The same applies when you sell each stock. As 2019 beckons, check out zero commission trading and make the right decision as to the assets you need to purchase based on your investment requirements and goals.
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+1.954.944.3885