In our last blog post, we discussed some advantages of ETFs over Stocks. Now we will discuss 3 disadvantages of ETFs over Stocks.
1. Higher costs
You have to pay commissions when buy or sell stocks and ETFs (some brokers do offer limited number of commission-free ETFs). However, ETFs have expenses, although the expense ratios of ETFs tend to be very low, nevertheless, they are higher than stocks which have no such expenses.
2. Overdiversification
For some investors who just need one or two specific stocks for their investment portfolio, ETFs offer overdiversification. For example, a sector ETF has many stocks that are highly correlated in their movements.
3. Hard to do fundamental analysis
With many stocks in one ETF, it's hard to do any fundamental analysis of ETFs. However, if you just focus on an individual stock and do in depth analysis, it's likely you could generate better return.
In summary, if you believe you have above average stock picking skills, stocks might suite you better; otherwise, ETFs offer investor a less volatile way to participate the stock markets.
1. Higher costs
You have to pay commissions when buy or sell stocks and ETFs (some brokers do offer limited number of commission-free ETFs). However, ETFs have expenses, although the expense ratios of ETFs tend to be very low, nevertheless, they are higher than stocks which have no such expenses.
2. Overdiversification
For some investors who just need one or two specific stocks for their investment portfolio, ETFs offer overdiversification. For example, a sector ETF has many stocks that are highly correlated in their movements.
3. Hard to do fundamental analysis
With many stocks in one ETF, it's hard to do any fundamental analysis of ETFs. However, if you just focus on an individual stock and do in depth analysis, it's likely you could generate better return.
In summary, if you believe you have above average stock picking skills, stocks might suite you better; otherwise, ETFs offer investor a less volatile way to participate the stock markets.
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