Leo Zwiener — Market Insights

When people first begin investing, one of the most common debates is between ETFs (Exchange-traded funds) and individual stocks. At first, I believed individual stocks were clearly the better option because of the potential upside returns, which stemmed from my high risk tolerance. If you invest in the right company early enough, the gains can be incredible. Imagine investing in NVIDIA in 1999; it would be like hitting a gold mine. However, after spending more time learning about the market, reading financial news daily, and studying different investment strategies, I realized the decision is much more complex than it looks on the surface, and it actually ties into my previous blog, “What Really is Risk Tolerance?

ETFs have become extremely popular over the last ten to twenty years, and for good reason. They offer diversification, lower overall risk, and exposure to large market sectors without requiring investors to constantly research individual companies and try to find the next winner. Instead of relying on a single company to perform well, ETFs spread investment across dozens or even hundreds of companies. For example, the largest index, the S&P 500, has an ETF that provides exposure to 500 of the largest companies in the United States, which helps reduce the impact of a single company performing poorly. Usually ETF’s have outperformed the majority of active investors over long periods of time.

However, individual stocks still have advantages that attract many investors, including myself. Investing in individual companies allows investors to potentially outperform the market (S&P 500) if their research and analysis are correct. Companies like NVIDIA, Apple, and Tesla generated enormous returns for long-term investors who believed in their future early on. Individual stocks also give investors more control and make investing more engaging, but more time-consuming, because you are researching businesses, leadership teams, earnings reports, and long-term growth potential.

The downside is that individual stocks carry significantly more risk. Even strong companies can experience major declines due to systematic and unsystematic risks like poor earnings, economic slowdowns, leadership changes, regulation, or shifts in consumer demand, while ETFs usually aren’t affected by unsystematic risks.

Personally, I believe the strongest approach for most investors is combining both strategies. ETFs can provide a stable foundation focused on long-term growth and diversification, while individual stocks can allow investors to take risks on companies they strongly believe in after doing proper research. In my opinion, investing should not feel like gambling AT ALL. Every investment decision should have reasoning behind it and a long-term perspective.

Currently, my individual brokerage account is filled with only individual stocks, which I will get into later. However, when I turn eighteen and open my Roth IRA, I will likely invest in an S&P 500 ETF for long-term growth.