Hello everyone, I have a beginner’s question . Why you guys not put money in index fund and ETFs instead buy individual stock? Thanks
Raymond Borger: Ummmm…. Dividends…
Cynthia Zhang: Index Fund and ETFs don’t have Dividends?
Steve Wall: No fee’s? Can choose your allocation ratio for each stock. Can be higher dividends compared to a fund that may dilute.
Bob Gould: They usually have lower rates than what could be had through individual stocks.
Cynthia Zhang: I see..Thanks!
Gustavo Torres: Anyone correct me if I’m wrong, but don’t you use the ETF to identify the which individual stock is performing well compare to it?
Sam Leathers: For me personally, it is about actually owning something and having the right to vote. with an index or ETF you don’t have a voting right or as far as I am concerned you don’t really own anything, plus even if you had millions in an etf or index they would never let you swap it for the underlying shares. That reasoning is certainly not normal but that’s my perspective.
Cynthia Zhang: Very interesting! Thanks
Robert VanScoy: I do… I create the fund of exactly the companies that I want to own.
Karl Yasin Sariduman: Can you explain more ? Like what is that mean ?
Robert VanScoy: I’m being a little facetious. An ETF is simply a fund that holds underlying assets – usually stocks, bonds, etc. So, I was taking a different view of my portfolio. I was looking at it as if it was an ETF that I picked out all the holdings. Let’s call it Bob’s DGI portfolio ETF.
Philip Miele: SCHD is an etf that pays dividends. Lots of people have it. I have stock in Apple. I also have etfs that include apple. I feel like the etf is a good blend of stocks. I also feel like Apple is a good long hold. So I buy it individually, collect the dividend and watch the shares rise.
Long Dang: 1. you have to pay a fee for the EFT and the fund2. you can create your own fund with whatever the stocks you like. Which in case some of the funds won’t have that option
John Rowland: I like index funds and etfs. They pay dividends too.
Margo Channing: Why not create a portfolio of dividend etfs? Including ones like small cap dividend etfs and asia-pacific dividend etfs etc?
Seth William Banks: I like sector ETFs in theory because they allow me to own a chunk of some stuff I may not understand or want to take the time to understand as well as I would want to for an individual stock.
Greg Williamson: ETF’s are certainly an option. However, with index funds you are basically accepting average returns. An index fund may have hundreds of holdings. With individual stocks, the goal is to outperform ETF’s by selecting the best stocks.
Cynthia Zhang: This is make so much sense to me
Greg Williamson: I have positions in quite a few ETF’s in addition to individual stocks. I normally buy an ETF for a specific reason. For example if you want to get exposure to a particular country but you are not very familiar with the individual companies from that country, you may want to buy an ETF that focuses on it.
Cynthia Zhang: Aha that’s so smart! Thanks
Jason Hall: It’s also a good way to gain exposure to a specific sector without having to learn about that industry. Healthcare for instance is a great sector but outside a lot of people’s expertise. A good healthcare ETF (especially and index fund) can be a great way to invest in an aging US populace and a growing global middle class that will be able to spend more on better care.
Seth William Banks: ETFs are great for getting some diversity into something you might not understand extremely well. I also like to research ETFs and look at their largest holdings and how well they are doing to get ideas for my next purchase.One of the biggest reasons to own an ETF is to have diversification before you can afford to have a lot of money in the market, or in a particular sector. I started out in all ETFs and was lucky to quickly have enough money in the market to get into ten different individual stocks. Not everyone has this kind of money.Personally, whenever someone with under $5k says they want to begin investing, my advice will always be to get into ETFs first.Another reason I like ETFs a lot is many of the online brokerages have a lot of commission free ETFs. I’m not above purchasing a single share of such an ETF to get a feel for something, whereas I never purchase individual shares in blocks of less than about $1,000 sue to trade fees. With the commission free ETFs through TD Ameritrade, I get zero commission fee just as long as I hold 30 days before selling.
Greg Williamson: Good points. Also if an investor is extremely familiar with a particular sector, technology for example, and knows which companies are the best ones to invest in, it would be better to invest in the individual stocks from that sector. However, if that same investor has no clue about healthcare, he or she may opt to invest in a healthcare based ETF instead of individual healthcare stocks.
Phuong Tran: It’s question of passive investing vs active investing. Everyone already talks about the difference in fees and the flexibility so I wouldn’t go through those again. In passive investing , if the market goes down, you go down with it, if the market goes up, your account will go up (I am assuming you buy S&P 500 Index Fund.) In active investing, you are a stock picker. If you pick the “right” stocks, there is a very good chance that you can beat the market, which is the passive guys. A common goal for most active investors (not all) is to beat the S&P 500 Index. Another way to put this is when you go active and buy stock(s) for your portfolio, you are essentially betting on the management of that company.I, myself, currently like active investing. Although I spread my stocks out to eleven sectors, I pick those stocks myself. My portfolio has higher dividend yield than that of the S&P. One of my goals is to outperform the market as well, but making money via capital gain and dividend is more important to me. That is my first priority. I don’t really care much about beating the market. So if you don’t have a lot of time and don’t want to take a lot of risk, I would say go with passive investing, buy ETF or Index funds. If you think you have time to do research so that I can pick to “right” stock to buy, and your risk tolerance is somewhat high, I would say go active.About the risk tolerance, yes, even if you choose active investing, you can buy the so-called defensive stocks so they appear “safer” than other stocks, but believe me, doesn’t matter it’s JNJ or WTR, an individual stock can take a huge plunge. ETF and Index fund can have big drop as well, but it will depend on which index fund you have. I personally haven’t seen the S&P 500 Index drops by 15-20% in one day. Good luck. ?
Cynthia Zhang: Wow.. Thank you so much Phuong!
Phuong Tran: You are welcome.
Karl Yasin Sariduman: Phuong Tran l would be really appreciate if you share your portfolio at some point.
Phuong Tran: At some point in the future, I will do that. Couple days ago, I did give a list of most of the stocks I have in my portfolio.
Karl Yasin Sariduman: Thank you ! That would be really great!
Cynthia Zhang: I will love to see your portfolio.
Phuong Tran: I just did on another post.
Seth William Banks: Small and medium caps are one area I really like ETFs. I use VYM and VO to catch funds in too small (for me) an amount to invest in individual stocks due to the trade fees eating up too large a chunk of whatever profits I would make within my IRA (since I can only put $5,500 in my IRA per year and hate to leave cash idle).Well, VYM is a well known dividend ETF primarily in the mega-caps, but VO has been a GREAT education for me in mid-caps, as that is its primary focus. I’m not the biggest fan of investing in individual names in the mid-cap and small-cap space since I don’t really have enough money in mega-caps safely chugging along for my taste to get into the mid-cap and small-cap space yet. But VO has been a consistent winner for me in my IRA and it will eventually become a core holding in my taxable account once I get more money in there and have built out the portfolio more.
David Scott: You don’t have to do just one, you can invest in index funds and individual stocks.
Victor Maldonado: Good question. Not a beginner question at all. As for me I do both. Keep adding more shares of my index and increase my div shares so I enjoy the monthly income which I reinvest of course to get more shares. It’s like a little rolling snowball that get larger and larger.
Cynthia Zhang: Thank you! I need starting investing asap. Lost $85k last 10 years in stock. Most of them I just listened to my friends what to buy and sell. Due to my health issues I don’t think I can keep working full time. I want have around $3k income when I am age 60. So I can retire.
Lynn Kissner: Cynthia it wouldn’t hurt to get some education as well. Learn to read price action on charts, how to determine what the trend is and how to determine when the trend is broken. I’m not a core/buy and hold trader to the point that I’m going to let my pos…See more
Lynn Kissner: Cynthia Zhang ?
Cynthia Zhang: I have so much to learn
Sue Weed: I do both as well. Individual stocks are from companies whose products I use.
Cynthia Zhang: Thank you everyone who took your time to reply. You guys are awesome ❤️
Greg Page: Another thing to think about is taking advantage of temporary price dips, a.k.a. The Motion in the Ocean. Let’s say you own 10 different dividend aristocrats — you love all those companies, and you’re indifferent in terms of which you’d like to invest in next. All else equal, why not buy the one that’s down the most that (insert name of time period). If you really love an Aristocrat, that should be a long-term thing…so when you get a great opportunity to catch a JNJ, an MMM, or a PH on a price dip, that’s something you wouldn’t get by buying VIG….but VIG is pretty awesome in terms of diversifying away your firm risk
Cynthia Zhang: Looks like I am going to put half my money in EFTs and index funds and half build my own ??
Phuong Tran: I stay entirely passive in my 401k that I currently have with my employer. For my personal investment portfolio, I am quite active. I don’t usually trade, but I do pick stocks for my portfolio. I like everything the way it is now because I want to take risk, but not too much risk.
Reni Johnson: Good luck Cynthia and happy investing.
Cynthia Zhang: Thank you!
Reni Johnson: Cynthia Zhang I see you are also a soap maker! High five lady! I am as well. I have a page on FB: Designs by Reni if you want to see my soaps. It’s one of my other passions besides investing!
Rodger Frego: Many of us own some stocks, but invest mostly in ETF’s, for more diversification and safety. Don’t want to put all of our eggs in one basket. They tend to crack when we do that.
Michael O’Ceallach: Cynthia, consider putting the majority of your funds into ETF’s and have them nicely diversified. Keep a small portion available (3-5%) for more risky investments. Money you can afford to lose. I suggest this strategy for a while until you are more experienced with trading. Even then, it’s still a good strategy to keep doing.
Cynthia Zhang: Just ETFs? No index fund?
Michael O’Ceallach: ETFs and index. Look at some of the Vanguard funds. Very cheap and highly liquid. You want fees under 0.4%. Well under.
Brian Fey: Most people should. But most people think they can beat the market, however many of those people are wrong, they can’t. Personally, I’ve made 6500% on a investment in 8 years, you can’t and will never do that in a index fund. I’ve been doing this for 27 years now, and most years I do consistently beat the market.
Karl Yasin Sariduman: Wow Brian ! l would love to see your portfolio!
Cynthia Zhang: Wow wish I can learn from you. You are my hero.
Rodger Frego: Yup and I am Fred Flintstone lol Got to admit, that was a good one. Got us all laughing lol
Robert VanScoy: Fred, you sound like someone who has no Alpha and therefore assumes no one else does either.
Greg Williamson: Brian, just curious, what was the stock you make 6500% on?
Dennis Fuller: I actively trade and I constantly have beaten the market, It just takes attention that you have to give it..
Dennis Fuller: Buying an index fund when the market is AT IT’S ALL TIME HIGH is in a term “Buying High” The term you must remember when some body is giving you advise is “Buy Low Sell High”. When the market crashed in 2009 MF dropped 50 percent. and yes that included the index funds. Time is on your side , wait for a drop in the market before you buy the index funds. Pick stocks that have been beaten up and load up on those in the mean time. That list includes AT&T, Zerizon, Qualcom, EXON, VALERO, Look for the bargains
Rodger Frego: Most investors know, or should know there risk tolerance. Mine is 70% equities and 30% bonds. If you are properly allocated and rebalance regularly you are automatically buying low and selling high. What you described is market timing and it’s been proven over and over again not to work. The best way to invest is to buy, hold, and rebalance once or twice a year or when your allocations are 5% out of sync.
Dennis Fuller: Rodger people have been lied to there entire life by financial planners.. (The, have to have bonds as a percent of there age for example ) , is BS.. Any body in the bond market will tell you the spread currently is losing value. Only buy bonds in a inf…See more
Cynthia Zhang: Oh no just bought $20k VFIAX 3 week ago
Phuong Tran: Dennis, sorry to interrupt, we all want to buy low and sell high. I used to time stocks, sometimes I got them right, but most of the times, I got them wrong. Maybe I am not good at this, and you are. The only time that I timed the market correctly enti…See more
Michael Cavaliere Jr: ETFs and index funds are very simple, less stressful things to invest in. There’s some good dividend ETFs out there. VNQ, VYM, LQD. I’m also in cibcx a mutual fund. You can create a portfolio of dividend stocks, or you can create a portfolio of higher dividend ETFs. I felt I was missing something investing in stocks, I had a good portfolio, then I heard about this stock and wanted to buy it, and that stock and wanted to buy it. With ETFs or index funds I found I didn’t feel like I was missing as much because I’m in a ton of socks. Individual stocks may make you more money, but they are more risky. I just found this mentally easier and less stressful. Bottom line,,,,, invest.
Rodger Frego: You might want to run a free overlap test at morning-star because I think some if your fund have significant overlap. Also you might want to consider identical ETF’s like VOO and VTI, since the expense ratio’s are cheaper. I use Vanguard but many of the Identical ETF Funds at Schwab have lower expense rations, just nit enough to convince me to move.
Cynthia Zhang: Those are my Mutual fun holding please help me see if I made mistakes. I just bought $20k VIFAX rest of them I hand almost 3year my return is like 4% a year.Any help appreciated! Thanks!
Phuong Tran: I am not familiar with these ETF so I would say check the historical performances, see how they perform against certain benchmark such as the S&P Index. Check the underlying holdings, probably top 10 or 20 of their holdings. I assume the fees of these Vanguard funds are low, but check these as well to see if you still like them.
Dennis Fuller: Cynthia, I didn’t mean to cause you any problems .. Please know there are always ADVANTAGES and DISADVANTAGES in any form of investing. People feel free to give advise on what works for them. The advantages of a MF is that your money is stread out over…See more
Dennis Fuller: There are several ways to watch the market , with a icon on your desktop. Every morning and every afternoon take a look and keep the DOW and the S&P number in your head . That way you can see if your entry point is higher or lower. Please post these pi…See more
Michael Cavaliere Jr: I love this Facebook group, but do remember, alot of investing opinions are opinions. Do your own research, or maybe seek a professional. Ok, my opinion, I understand what you picked, but it depends on your age or how aggressive you’d like to be…. This decides what percent of your money is in each fund. Adjust according to your comfort level. It’s obvious the growth potential of the stock funds but, the bond and money market fund will slow your growth. Not necessarily hurt, but slow. There’s nothing wrong with being in bonds and stocks, I’m in clbcx which is an American funds balanced fund, in it 60% stocks, 40% bonds, with a 3.12% dividend, been in it since 2002, think my rate of return since I got in is 8%. So my point, one fund can give you balanced approach. If your young, if your comfortable, you might want to adjust your percentages to be more in the stocks and less in the bonds and money market.
Michael Cavaliere Jr: This guys approach is a little aggressive but he’s not wrong…. Check him out, you’ll learn alot, http://www.daveramsey.com/blog/daves-investing-philosophy
Dave’s Investing Philosophy
Robert VanScoy: I am a huge Dave Ramsey fan. His is advise is sopt on… right up to the point he starts to talk about investing.
Michael Cavaliere Jr: I trust him, he’s the multimillionaire here.
Robert VanScoy: Michael Cavaliere Jr – Multimillionare just means having two million dollars or more, right?
Robert VanScoy: http://budgethacks.com/dave-ramsey-exchange-traded-fund/
Does Dave Ramsey Understand What an ETF Is? | BudgetHacks.com
Lynn Kissner: Robert the most important line in that article is the last one ?
Lynn Kissner: One also has to consider that some of that wealth/net worth is a combination of multiple things. How much wealth has been generated by his sales? Books, programs and the like. Also consider that property purchased at wholesale that has a high retail now would be combined in his net worth. It doesn’t mean that his net worth has come strictly from investing or trading.
Michael Cavaliere Jr: And I 100% agree Lynn Kissner,,,, the last sentence is most important, I said this in my original comment.
Lynn Kissner: I went into investing not knowing squat. Some of my original purchases were in oil and gas. I didn’t have a stop in (bad move) but I knew that I didn’t want to lose any more 1/2 of my profit whether it was dividends or capital gain. I exited. Can you imagine if I had stayed in long term waiting for the market to turn around. It was then that I decided to get some training.
Michael Cavaliere Jr: Keep in mind, investing is opinion of strategy, especially your own opinion. Most important invest!
Lynn Kissner: Exactly. Except mine isn’t to sit through a large draw down. I’d rather exit and put the money into something that was trending nicely instead of tying up the $. I have my investment accounts and my trading accounts. Each with a different trading plan.
Reni Johnson: Robert VanScoy great article here. I agree that everyone should become their own best financial advisor if it interests them to do so.
David Rapp: Fees
Robert VanScoy: Options
Lynn Kissner: Not without knowing what you are doing. I wouldn’t recommend them for an inexperienced trader/investor. They are a good way to generate income if you know what you are doing.
Robert VanScoy: I agree, but she asked me why I do it. 😉 Or maybe I wasn’t talking about options, but rather having more options with individual stocks… to write options.
Lynn Kissner: Gotcha! Your post/reply ended up at the bottom so, I misunderstood.?
Robert VanScoy: No, you probably got it right… I’m just having fun.
Robert VanScoy: I’m just trying to keep my options open…
Lynn Kissner: You do have the option to do that ?
Robert VanScoy: you almost always have the option to roll out your option to a new option with more options.
Lynn Kissner: ????
Reni Johnson: I love having options in my life but have no idea (because I haven’t done any reading or research to learn) about the options you talk about. It’s on the list to learn though.
Lynn Kissner: Awesome Reni ?
Ken Faulkenberry: With ETF and index funds you own a basket of stocks with both the good and bad, the expensive and the bargains. You will do “average” with this strategy. This is fine for many investors. However, those that are willing to spend the time can buy individual stocks and only own the good and the bargains.
Joe Patton: Average?