Should you invest your money in individual stocks or put them into ETFs? So first let’s talk about what individual stocks are and what ETFs are. Individuals stocks are for a company and when you purchase a number of stocks, you are purchasing ownership as you find it valuable to own the stock of the company. On the other hand, ETFs are an exchange-traded fund which is a basket of securities that trades on an exchange just like a stock does. An ETF is a type of fund that holds multiple underlying assets, rather than only one like a stock does.
Which do I prefer? ETF or individual stocks
When I first started investing, I preferred individual stocks as I thought that by researching and knowing more about the company, I can decide if it is a good company to invest in. That was in the Singapore market and I realised that was not the case as the companies I research on might seem like they will do well but I wasn’t really doing the right research and was just reading things that people wrote and skimming through the financial reports and statements.
After making multiple purchases of individual stocks that made me lose money, I decided then to stop and instead focus on a World ETF hence I started buying Vanguard Total World Stock Index Fund ETF (VT). This was when I actually had substantial profits as I diligently applied DCA-ing and just bought this ETF when the pandemic started buying in at the 60s and 70s range. Of course, I started buying Tesla as well and more towards US stocks & ETFs.
Overall, I prefer buying ETFs than individual stocks as it gives me more exposure and experience less volatility compared to majority of the US individual stocks. Accumulating Tesla was great for my portfolio as the profit far exceeds any other holdings in my portfolio but I know I was lucky to got in earlier and also DCA my positions in. But the daily price action is very volatile and it fluctuates rapidly. I wouldn’t have the confidence to accumulate another similar amount of position into another individual stock and also because Tesla grew to a substantial position with it’s price growth. So for me, currently, ETFs are the way and namely, VOO, QQQ or VT depending on how diversified you like to be.
What is showing in my portfolio? ETFs versus individual stocks
Tesla is beyond 50% proportion in my stocks portfolio so I have stopped adding onto it and instead am adding QQQ with my monthly DCA. After the drop in 2022, I find myself hoping to build up more in ETFs so that I can be more diversified and reduce the volatility of my portfolio. The gains from Tesla stock has been exceptional for my portfolio and I don’t think I will strike it again with another individual stock. But I do still want to be having exposure with it and buying QQQ will also help me have a position on it.
Read more: My Tesla Journey | How it became the largest holding in my portfolio
Individual stocks can provide more profits but similarly losses
Many individuals benefited in 2020 to 2021 buying stocks that performed well during the pandemic as many worked from home. We saw Zoom, Docusign and Shopify hit ATH and people made money however things took a turn when we entered 2022.
If those who bought and sold them for a profit, they would have sold for a nice profit but if they chose to hold on to those till date, they might have losses depending on when their entry point is.
Read more: Boglehead 3 Funds Portfolio | Why I chose VT and VOO for my regular savings plan?
Is the market going to be worse in the second half of 2022 and 2023?
As the FED prepares for interest rate hikes to tackle inflation, many investors or individuals are tightening their belts to prepare for a worse time ahead with expectations of more layoffs, bad economic outlook and markets dropping by more as climate and food supplies seems to be blocked.
Many companies especially tech went through a hiring boom in 2020-2021 as working from home made technology very pivotal and earnings were great during that period. As earnings were great, the forecasted future earnings were predicted to be higher and companies hired to hopefully achieve a higher growth. However, recently as inflation went through the roof and people controlling their spending as well as China implementing huge lockdowns, tech companies are finding that the larger headcount does not equate to the high productivity that was expected.
We can see Google and Facebook tightening headcount, Apple laid off 100 contract recruiters as they will only focus hiring in the needed areas. Shopify also had a substantial number of ayoff and I think moving into the last part of 2022 and 2023, as earnings are forecasted to be down, I do think there will be more layoffs as companies try to reduce their headcount and cut costs. We can also see Europe experiencing high energy costs and inflation there is unquestionably high there as they enter winter towards the end of 2022.
It really is a gloomy outlook and I think even my job is not as secure as I think it might be. In times of all these bad news, ETFs are my choice as compared to individual stocks as I am planning to hold them for the long term and have no plans to buy and sell in the short term unless the profits are life-changing.
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