ETF's Have Overtaken Stocks In Popularity?

The stock markets in the U.S. (such as NYSE and NASDAQ) used to be where you went to buy individual stocks in the companies you wanted to invest in. While you could also buy mutual funds and ETF's, it was stocks that were the most heavily traded and took in the most dollars.

But now it seems that ETF's have pushed individual stocks aside to claim the number one spot according to this article in Bloomberg. The number of exchange traded funds have exploded in recent years and obviously people like the fact that you can buy and sell them as easily as any stock and get a bit more diversity (depending on what you buy) than individual stocks.

There are now close to 2000 ETF's to choose from and I ask the question: with that many choices, how on earth does an investor go about choosing one? I have always liked individual stocks because they are easy to understand. If you like what Netflix sells, you can buy the companies stock. If you like what Chipotle sells, you can buy its stock. Its relatively easy to figure out what businesses or business models you like and buy the stocks of those companies.

But with exchange traded funds it becomes a bit harder to identify exactly what you are getting. ETF's track different indexes or segments of the market so you will be buying something more diversified than one companies stock. If you want to buy into the technology sector for instance, you will need to decide on one of the many ETF's that track technology. But how do you decide which one to buy? Is it easy to understand the exact differences between all the technology ETF's? I don't think so.

Maybe I am naive but I think its easier to pick one company I like rather than the ETF I want to buy. That's why I'm sticking mostly with individual stocks. Obviously though, many investors feel differently and like exchange traded funds because they are easy to buy/sell and are just as cheap (fee wise) as stocks. You can buy a whole industry and sit back and not worry about this or that particular company like you might feel prone to do with stocks. You might also fell less of an urge to panic sell at every bit of bad news. That makes ETF's a good choice for anyone who doesn't want the hassle of having to look at a portfolio every day or week just to check their stocks to see what is going on with them.

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