A share of stock represents an ownership interest in a company. An exchange-traded fund, or ETF, is a pooled investment vehicle that generally holds a basket of assets according to an objective or strategy.
Individual shares
Buying a company's stock exposes you to that company's business results, management decisions, financing and market conditions. Your return is affected by price changes and any distributions, but neither capital gains nor dividends are guaranteed.
Exchange-traded funds
An ETF may hold many stocks, bonds or other instruments. An index-tracking fund seeks to follow a defined benchmark, while actively managed funds make investment decisions under a stated mandate. The label ETF does not by itself guarantee diversification: some funds concentrate in one sector, commodity or narrow theme.
What to compare
- Holdings: what assets does the investment actually own?
- Fees: what are the ongoing expense ratio and trading costs?
- Concentration: could one company or industry dominate results?
- Liquidity: how easily can it be traded, and at what bid–ask spread?
- Risk: what could cause significant losses?
A worked allocation concept
If a portfolio has $1,000 in one share, all $1,000 is exposed to that one company. If it holds $1,000 in a broad fund, exposure may be spread across numerous holdings, although market-wide losses are still possible.
This example teaches a concept and is not a recommendation to buy any specific security. Always review current fund documents and understand your own situation.