How is buying an ETF better than buying individual stocks?

The majority of a market's performance is contributed by a minority of "superstar" companies. This is reflected when you see stock of strong businesses moving up and down, and the indices they are part of moving in tandem.

In a word, if you're noob like me, or no time to choose individual stocks, buying the entire market allows you to partake of that stock's performance without going through the pain of losing money if you chose the wrong stock to buy.

Its like a team sport, e.g relay team, basketball, soccer. The better players will most likely bring tje team up 😊

Well buying an index ETF like the S&P500 means instant diversification, since you would be buying the top 500 companies in the US, and low fees.

Furthermore, as long as the economy grows, the index ETF will grow with it.

Individual stocks however, is very much dependent on the company's performance, and to a certain extent, speculation. Just look at Gamestop stock. Individual stocks hence suffer from more extreme volatility compared to index ETFs.

In addition, it is very much possible for a company stock to drop to a very low value without recovering (see Citibank stock), whereas it is quite impossible for an index ETF like the S&P500 to not recover in the long term, as long as there is economic growth.

This is why they always say, you buy ETFs so that you can sleep soundly at night.

Best.

- Jeffrey (jeffreyleezq.com)​​​

When you own an ETF, risk is spread out as an ETF is a basket of stocks. When you own a stock, you are more susceptible to market volatility as there are greater price movements. You also need to be more careful choosing the right stock at the right price. Stocks with poor fundamentals may crash and never return back. Owning an ETF would help to reduce the risk.