The difference between buying ETF funds and buying stocks

2023-06-16
Summary:

ETF funds and stocks have their own advantages and disadvantages, and investors can choose investment methods that are suitable for them based on their own needs and risk tolerance.

Generally speaking, most investors will be familiar with stocks but unfamiliar with ETF funds. So what is the difference between buying ETF funds and buying stocks? How to choose Below is an analysis for everyone:

ETF

What is the difference between buying ETF funds and buying stocks?

1. Different concepts

Funds are issued by fund companies and are mainly used for investing in the money market, bond market, stock market, etc. The issuance of stocks by listed companies is a manifestation of the capital ownership of listed companies.


2. Different handling fees

Stock trading fees include stamp duty, brokerage commission, transfer fee, etc. Buying ETFs does not require the payment of stamp duty, and there are fewer types of fees compared to stocks.


3. Different investment risks

The risk of investing in stocks is greater. An ETF is actually an investment portfolio that includes not only a certain stock but also risks that are dispersed across each stock in the portfolio, equivalent to a diversified investment.


4. Different trading venues

Ordinary stocks are traded on the stock exchange. ETF funds can not only be purchased or redeemed from fund companies but also be traded on stock exchanges like closed-end funds.


5. Different trading methods

Some ETF funds implement T+0 trading (such as cross-border ETFs, bond ETFs, currency fund ETFs, and gold ETFs), and stocks are traded at T+1.


How to choose

Stocks and ETFs have their own advantages, and there is no better saying. Investors should choose products that are suitable for them based on their actual situation.


ETF funds are index funds that invest passively in the components or commodities contained in a selected index according to the types and proportions of the constituent indexes by adopting complete replication or sampling replication. Its advantages are diversified investment risks (less investment risks), low transaction costs, more convenient trading (diversified purchase channels), and arbitrage operations that can also be carried out according to the diversity of its trading venues.


The advantage of stocks is that investors have a high degree of autonomy and selectivity (with control in their own hands). Although the risks are relatively concentrated, choosing a good stock can yield considerable returns, making it suitable for investors with strong risk tolerance and stock selection abilities.

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