Stash allows people to invest in almost anything—from renewable energy to the legal marijuana industry or the entertainment industry, with more than 50 exchange traded funds (ETFs) and dozens of stocks.
But if you’re a new investor, where should you start? ETFs, or single stocks? Before committing to either one, you’ll want to make sure you understand the differences between the two, what they can do for your portfolio, and how they can fit into a diversified investing strategy.
The difference between stocks and funds
Keep these key things in mind about stocks and funds:
- A stock represents ownership in one company.
- A fund is a basket of stocks—it can contain the shares of hundreds or even thousands of different companies.
ETFs, similar to other funds, are baskets of securities. But ETFs trade on an exchange (such as the New York Stock Exchange or Nasdaq), and either follow an index or have some other specific set of guidelines.
Both single stocks and ETFs are investment vehicles and give purchasers an ownership stake in a company or companies.
Want to learn more? Read about the differences between stocks and bonds here.
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Learn to diversify.
As an investor, it’s important to create a diversified portfolio. That means owning an assortment of stocks, bonds, and funds. And one way to start doing that is buying a basket of stocks, such as an ETF.
Some ETFs even aim to give your portfolio broad exposure, for example by investing in a diverse range of stocks, which potentially can be less risky than investing in an individual company.
Of course, as your portfolio takes shape and becomes increasingly diversified, you can think about adding single stocks. Single stocks can be, but aren’t necessarily, riskier than ETFs, as they lack the broad exposure of a fund. As a result, a sequence of events hurting a specific company or industry can have an outsized effect on a single stock investment, and potentially, a smaller effect on an ETF.
Also, it’s important to keep in mind that the decision to invest in ETFs and single stocks will ultimately depend on your individual financial situation and your risk profile. In other words, investors that can handle the ups and downs of the market might find single stocks more attractive than conservative investors.
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