Why should you invest in both ETF and individual stocks, despite that stock is in that ETF basket already?

Just a newbie investor here, but I believe an example (using QQQ ETF) will help illustrate the points mentioned by everyone, and some food for thought.
​

AMZN & MSFT are the top 2 components of QQQ (adding up to 20% today).

​

For someone who's invested in QQQ, he may find the returns "unsatisfactory" and wish to buy AMZN/MSFT as well, for potentially better gains (note that this also introduces higher volatility and risk).

​

The impact on the portfolio can be significant because AMZN costs USD 3.7k while QQQ costs USD 410 (approx). Extreme case to make a point: If you own $3.7k of QQQ, just buying 1 lot of AMZN makes it the biggest component of your portfolio immediately ( 50%).

​

As @Tan Chong Hwee highlighted, this is concentration, not diversification. As @Frankie mentioned, this is active stock picking.

ETF is a basket of funds which waters down the risk exposure vs if you just invest in that particular stock.

​

Rather than asking this question, maybe you need to answer this question to yourself: what is the risk appetite you have? If you are a risk taker, go for the stock itself if you have strong conviction in the stock. if you're adverse to risk, go for ETF! however bearing in mind, low risk low reward.

More exposure to a certain stock, plus only a few top stocks in etfs generate returns for the etf

Hi anon, personally my main portfolio consists of etfs that I dca into monthly. However, I hold individual stocks which I deem to be undervalued.

​

I guess my main reason for doing so is to potentially achieve greater returns by increasing my exposure to certain holdings. Even though there will be an overlap in terms of exposure with my ETFs, I still feel that there is sufficient diversification.