Are you TeamShares or TeamETFs? A lot of people plant themselves passionately in one or the other camp, and there are definitely pros and cons that lie in either strategy. However there’s no rule that says you need to choose between the two, and a blend of both is just another way to craft a portfolio that works for you and your investment goals.
While investing in individual shares is considered to be higher risk, ETFs are essentially ready-to-go diversified portfolios which means they could be less risky depending on what their strategy and make up is. Remember, investing in something which is considered higher risk over a long period of time is often associated with potentially high returns.
Owning individual shares allows you the opportunity to pick and choose which companies you’d like to have in your portfolio. This could be based on your brand loyalty, belief system or any number of reasons. An ETF is a package deal, which means you get what you get, there’s no way to take out the companies you don’t want and keep the one’s that you do. This does however help you to avoid bias, because liking a company doesn’t automatically mean it’s the right choice for your portfolio or a good investment.
Investing in ETFs means that you don’t have to pay brokerage on each individual stock transaction, which makes them low cost. They do, however, come with an additional expense in the form of Total Expense Ratio (TER) which is the fee that goes to the provider of the ETF for portfolio management.
Time and energy
If you’re going to create your own share portfolio, you may need to take some time in researching the shares that you are interested in and decide how much of each you want to make up your portfolio. An ETF does all of this decision making for you, which saves you the hassle.
The best of both worlds
Combining shares and ETFs in your portfolio adds another layer of diversification to your strategy. It may mean being able to rely on the more stable, efficient nature of ETFs in times when the market is experiencing a lot of volatility and maximizing on any boosts in growth in individual stocks when things turn around.