Stocks vs. ETFs for beginners: how each works, and how to start with either
A stock is one company. An ETF is a basket. Here's how each works, what's different, and how to start with a small amount.
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Stock or ETF? It's usually the first real question new investors hit. Most answers either bury you in jargon or tell you which one to pick. We'll do neither. Here's how stocks and ETFs actually work, what's different, what isn't, and how to start with a small amount.
Stocks vs. ETFs: the short answer
A stock is a share of one company. An ETF, or exchange-traded fund, is a single investment that holds a basket of many stocks, bonds, or other assets. A stock ties you to one business; an ETF spreads you across the whole basket. Both can lose value.
What is a stock?
Buy a share of a company, and you own a small piece of it. Not a figure of speech: an actual, very small slice of ownership.
The price moves with how investors see that company. Its earnings, its products, its leadership and its industry all feed in. A strong quarter can lift the price. Bad news can sink it. Some companies also pay shareholders part of their profits, called a dividend.
The appeal and the catch are the same thing. Everything rides on one company.
What is an ETF?
An ETF is one investment that holds lots of others. Some hold a few dozen companies, some hold hundreds. Many follow an index, which is just a list of companies picked to represent part of the market. Others focus on one industry, a theme, or bonds.
Buy one share of an ETF, and you own a slice of the whole basket. One trade, many companies. For a closer look, read our beginner's guide to ETFs, or see how they compare in ETFs vs. mutual funds.
What's different between stocks and ETFs
How concentrated you are. A single stock depends on one company. An ETF spreads your money across its basket, so one company having a rough day matters less to you.
What it costs to hold. ETFs charge an expense ratio, a yearly fee taken as a percentage of what you hold. At 0.10%, that's 10 cents a year for every $100 invested (for illustration only). Individual stocks don't have one.
How much homework there is. With a stock, you're following one business. With an ETF, you're checking what it holds and what it charges. Both are in the fund's documents, and they're worth two minutes before you buy.
What's the same
Both trade on stock exchanges during market hours, and both prices move through the day.
Both carry risk, including the loss of money you put in. Prices can fall and stay down. Spreading out helps with one kind of risk, but diversification doesn't guarantee a profit or protect against a loss. When the whole market drops, most ETFs drop with it.
And neither one is “better.” It depends on your goals, your timeline and how hands-on you want to be. Plenty of people own both.
Stocks vs. ETFs side by side
Start small, on your terms. Open a Vantar account on the web, then buy a stock or an ETF in dollars when you're ready. Open your account
How to buy a stock or ETF with a small amount
On Vantar's Trade, you can buy stocks and ETFs in dollars or in shares. Buying in dollars uses fractional shares, so you can own part of a share, from [$1]. A few stocks are whole shares only, and the app tells you when.
Here's a first buy, using a $50 example (for illustration only):
- Open your account on the web. Sign-up takes about [5 minutes], then we verify your identity.
- Link a US bank account and add money.
- Search for a stock or ETF and open its page. For an ETF, check what it holds and its expense ratio.
- Enter $50, or a number of shares. Market, limit and stop orders are all there. New to those? Here's our guide to market vs. limit orders.
- Check the Review order screen, then swipe to confirm.
Would you rather make it a habit? A Recurring investment buys one stock or ETF for you every week, every two weeks or every month, from your buying power, starting at [$1]. Pause it, change it or stop it whenever you like.
The bottom line
A stock is one company. An ETF is a basket. Both carry risk. Start with the one you understand, at an amount you're comfortable with, and build from there.
New to the jargon? Our Learn library covers the terms, one at a time.
Ready when you are. Open a Vantar account on the web in about [5 minutes]. Open your account
Frequently asked questions
Are ETFs safer than stocks?
Not automatically. An ETF spreads your money across many holdings, which softens the hit from any one company. But ETFs still rise and fall with the market, and some focus on narrow parts of it. Every investment carries risk.
Can I buy ETFs with a small amount of money?
On Vantar, yes. Fractional shares let you buy in dollars instead of whole shares, from [$1].
Do ETFs pay dividends?
Many do. ETFs that hold dividend-paying companies usually pass those payments on to their holders. The fund's documents explain how and when.
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