Stocks vs. ETFs – Which One’s Right for You?

Episode 11 of The Smarter Money Show explores the key differences between buying individual stocks and using ETFs to build your portfolio. We look at risk, diversification, control, tax efficiency, and psychological behavior across both approaches.

You’ll learn when it makes sense to stock-pick - and when you’re better off going passive. This episode helps you choose an investment style that matches your personality, discipline, and desired level of involvement. There’s no one-size-fits-all - but with the right mindset, you can win with either strategy.

Episode Transcript

Speaker 1 (00:00):
As always before we begin, this podcast is for informational
and educational purposes only. It is not financial advice. Always
do your own research and consult with a licensed advisor
before making any investment decisions. Welcome back to the Smarter
Money Show. I'm your host, and this is episode eleven.
Today we're digging into a foundational question that every investor

(00:21):
runs into sooner or later, and usually much sooner. Should
I invest in individual stocks or just stick with ETFs.
This might sound like a basic question, but the answer
can shape your entire investment journey, your strategy, your risk profile,
your returns, and just as importantly, your stress levels. Because
let's face it, the way you build your portfolio has

(00:43):
a huge impact on how you sleep at night. It's
not just about numbers. It's about how much control you want,
how much time you have, and how much volatility you
can stomach without hitting the panic button. So in this episode,
we're going deep. We're going to look at what ETFs
actually are, what individual stock investing really demands, and how
to choose the path or the mix that fits your goals,

(01:06):
your mindset, and your personality. Let's start from the top.
An ETF or exchange traded fund is essentially a rapper
that holds a collection of assets, usually stocks, sometimes bonds, commodities,
or a mix. The beauty of an ETF is that
when you buy just one share, you're getting instant diversification.
You're owning a slice of many companies at once. Some

(01:28):
examples VTI the total US stock market, VOO, the S
and P five hundred, QQQ the top one hundred non
financial companies on the Nasdaq, VXUS, international stocks excluding the
US SCCHD dividend focus large caps. ETFs are designed to
be passive. They don't try to beat the market. They

(01:49):
are the market, and that's more powerful than it sounds. Now,
contrast that with individual stocks. When you buy shares of
a single company, say Apple, Microsoft, Shop, Palanteer, you're making
a concentrated bet. You're saying, I believe in this business,
I want exposure to this story. I think it will outperform.

(02:09):
That's a different mindset. It's not bad, but it's very
different from owning the market. So let's break down the
strengths of ETF's first one diversification. This is the big one.
With one click, you're instantly spreading your risk across dozens
or hundreds of companies. That means if one company crashes,
you're not wrecked. If one earnings report goes sideways, your

(02:32):
portfolio barely moves. Diversification is your first line of defense.
It reduces the impact of company specific risk and gives
you smoother long term performance. You won't get the crazy highs,
but you also won't get crushed by one bad bet.
Two simplicity. ETFs don't require deep analysis. You're not digging
into earnings calls or reading SEC filings. You're buying exposure

(02:56):
to themes like growth value, large caps, global mark markets,
or dividends without needing to pick winners. And this simplicity
is not a bug, it's a feature. It removes a
ton of decision fatigue. Three time efficiency. Most people aren't
full time investors. They have jobs, families, lives. ETFs are

(03:17):
perfect for people who want to build wealth without turning
investing into a part time job. You can create a
powerful portfolio with just three five ETFs maybe VTI US
Total market, VXUS, International BND bonds, SHD dividends, VNQ real estate.
That's a full diversified portfolio right there. Rebalance it once

(03:38):
or twice a year. Done. Four behavioral edge. Let's talk psychology.
When you hold an individual stock and it drops twenty percent,
it hurts you question everything. Was it a mistake? Should
I sell? Is this company broken? But when a broad
ETF drops five percent, it feels normal. It's the market.
It's supposed to go up and down. That emotional distance

(04:00):
protects you from panic selling, and that's a massive edge
over time. Five. Cost and tax efficiency. ETFs are dirt cheap.
Many of the most popular ones have expense ratios of
zero point zero five percent or less, meaning you pay
five dollars per year for every ten thousand dollars invested.
They're also structured in a way that minimizes capital gains taxes.

(04:24):
Especially in the US. ETFs use a mechanism called in
kind redemption to avoid triggering taxable events. You don't need
to understand the mechanics, just know it helps. Now let's
switch gears. Why do some investors choose individual stocks? One
potential for outperformance. This is the number one reason. When

(04:44):
you own an ETF, you are the market. Your returns
will be averaged by definition. But when you buy individual
stocks and you choose well, you can beat the market.
A one thousand dollars investment in Nvidia ten years ago
would be worth well over one hundred thousand dollars today, Amazon, Apple, Tesla.
These stocks created massive wealth. ETFs won't do that. They

(05:07):
smooth out your winners with lots of average performers. But
and it's a big butt. Most stock pickers don't outperform,
so this potential comes with serious risk. Two ownership mindset.
When you own a stock, you feel like a shareholder.
You follow the company, you understand their business model, you
care about their products. This creates engagement. You start thinking

(05:29):
like a business owner, not a gambler. You build conviction,
and that can lead to better decision making if you
stay rational. Three Control and customization. Want a dividend only portfolio,
you can build it. Wants exposure to AI, semiconductors, or fintech.
You can curate your own picks. Want to avoid certain

(05:50):
industries for ethical or personal reasons, you can exclude them
with ETFs. You're stuck with what's inside the basket, whether
you like it or not. Four Tax optimization flexibility. Owning
individual stocks gives you more granular control over tax planning.
You can sell losers to harvest capital losses. You can

(06:10):
hold long term winners. You can gift appreciated stock. These
are advanced strategies, but they're powerful and not possible with
broad ETFs. Now, let's get real about the downsides of
stock picking risk hash one concentration. When you own one company,
your fate is tied to theirs. Bad quarter, bad CEO, decision,

(06:31):
regulatory trouble. That's your money on the line. The upside
is higher, but the downside is too risk hash two
over confidence. Let's be honest, most of us think we're
better investors than we are. We chase hype, we buy
based on Reddit threads or YouTube videos. We pan excel.
We think we've found the next Tesla, and then it

(06:52):
drops sixty percent. The data is brutal. The majority of
retail investors underperform the index, not because they're dumb, but
because stock picking is hard, really hard. Risk hash three
time and complexity. Great stock pickers read annual reports, They
follow earning's calls. They understand the industry, the mote, the risks,

(07:14):
the financials. They think in probabilities. That's work. If you
don't want to do that, no shame, But then stock
picking probably isn't your game. Risk hash four behavioral landmndes.
Watching your individual stock drop thirty percent messes with your head.
You second guess, you blame yourself, you swear to never

(07:35):
do it again, or worse, double down on a loser.
Emotion is the enemy of returns. Stockpicking amplifies that emotion.
So here's the big question. What's right for you? If
you want simple, diversified, low maintenance investing, go with ETFs,
build a core portfolio, automate it, let it run. If
you want more control, enjoy research and are willing to

(07:56):
put in the time and effort, you can pick individual stocks,
but do it intention Don't chase heat, don't confuse luck
with skill, what about both. That's actually my preferred approach.
Use ETFs as your foundation, say seventy eighty percent of
your portfolio, that's your long term automated engine. Then use
the remaining twenty thirty percent for stockpicking. Treat it like

(08:18):
a satellite portfolio. Test your ideas, express your views, go active,
but within boundaries. Here's a sample mix. Sixty percent in
total market ETFs VTI VXUS, twenty percent in dividend or
thematic ETFs schd QQQ, fifteen percent in individual stocks five
percent in cash or alternatives. You get diversification, simplicity, and

(08:42):
still room to explore. One last note, your approach can evolve.
You might start one hundred percent in ETFs. Later you
add a few stocks or vice versa. That's fine. There's
no purity test here. The best strategy is the one
you'll actually stick to without losing sleep. So to wrap
it up, ETF's equal signed simple diversified, low cost, low

(09:03):
maintenance stocks equal sign higher risk, higher reward, more control,
more complexity. Most people benefit from a mix. Your strategy
should reflect your goals, not someone else's. And just to
say it again, this is not financial advice. You have
to build your own playbook. Know your risk tolerance, know
your time commitment, know your goals. Yeah. If this helped

(09:25):
you think more clearly about your portfolio, follow the show
and leave a quick review. In the next episode, we're
diving into dividend growth investing, a long term strategy that
combines income with compounding in a surprisingly powerful way. Thanks
for listening, Stay smart, stay patient, and stay invested.