What is the main difference between a stock and an ETF?

The main difference is diversification. A stock represents ownership in a single company, making its performance dependent solely on that company. An ETF is a basket of multiple securities (stocks, bonds, etc.), providing instant diversification and reducing the risk associated with any single asset.

Are ETFs safer than individual stocks?

Generally, yes. ETFs are inherently more diversified than individual stocks, spreading your investment across many companies or assets. This diversification helps mitigate company-specific risk, making ETFs typically less volatile and safer than holding a concentrated position in a single stock.

How much money do I need to start investing in stocks and ETFs?

You can start investing with a relatively small amount, often as little as $10 to $100, especially if your brokerage offers fractional share investing. Many popular ETFs also have low share prices, making them accessible to new investors.

Should I invest in stocks or ETFs for long-term growth?

For most long-term investors, a portfolio primarily composed of diversified, low-cost ETFs is an excellent strategy. ETFs offer broad market exposure, risk reduction through diversification, and lower management fees, making them ideal for consistent wealth accumulation over decades. Individual stocks can be added as a "satellite" portion for those with higher risk tolerance and a desire for active management.

How are ETFs taxed compared to stocks?

Both stocks and ETFs are subject to capital gains tax when sold for a profit and dividend tax on income received. Long-term capital gains and qualified dividends are taxed at preferential rates. ETFs can also be useful for tax loss harvesting due to their liquidity and ability to maintain market exposure with similar (but not identical) funds.

Can I lose all my money in stocks or ETFs?

While it's highly unlikely to lose *all* your money in a broadly diversified ETF, it is possible to lose a significant portion, especially during severe market downturns. With individual stocks, it is absolutely possible to lose your entire investment if the company goes bankrupt or its value plummets. This underscores the importance of diversification and investing for the long term.

What are the typical fees associated with ETFs?

The primary fee for ETFs is the **expense ratio**, an annual percentage of assets under management, which can range from very low (e.g., 0.03% for broad market ETFs) to higher (e.g., 0.50% or more for specialized or actively managed ETFs). You may also pay brokerage commissions when buying or selling, though many brokers offer commission-free trading for most ETFs.

Stocks vs. ETFs: A Comprehensive Investing Guide | One…