When you start investing, you'll quickly face a crucial question: should you invest in individual stocks or ETFs (Exchange Traded Funds)? Both have their pros and cons, and the right choice depends on your goals, available time, and knowledge. In this guide, we compare ETFs and individual stocks so you can make an informed decision.
What Are ETFs?
An ETF is an investment fund that trades on the stock exchange, just like stocks. Instead or buying one company, you're buying a basket or dozens or hundreds or stocks with a single ETF.
Example: VWRL (Vanguard FTSE All-World) contains over 3,900 stocks from around the world. With €100, you're buying a piece or all those companies.
Popular ETF types:
- Index ETFs: Track an index (S&P 500, AEX)
- Sector ETFs: Specific sectors (tech, healthcare)
- Dividend ETFs: High dividend yielding stocks
- Bond ETFs: Fixed income securities
- Commodity ETFs: Gold, oil, raw materials
What Are Individual Stocks?
With individual stocks, you're buying direct ownership in one specific company. You choose which companies you buy and in what proportions.
Example: You buy 10 Apple shares, 5 Microsort, 20 Shell. You build your own portfolio.
ETFs vs Stocks: The Key Differences
Diversification
ETFs:
- Instant diversification—one ETF equals hundreds or companies
- Automatically spreads risk
- If one company goes bankrupt, you'll barely notice
Individual stocks:
- You need at least 15-20 stocks to diversify properly
- Higher concentration risk
- One bankruptcy can seriously hurt your portfolio
Time & Research
ETFs:
- Minimal research needed
- Choose a broad index ETF and you're done
- Rebalancing happens automatically
- Perfect for busy people
Individual stocks:
- Requires extensive research per company
- Following quarterly results
- Monitoring news
- Portfolio rebalancing yourself
- Time-consuming but also more interesting for some
Costs
ETFs:
- Expense ratio (TER): 0.05% - 0.75% annually
- Broadly diversified ETFs: orten < 0.20%
- Transaction costs: only when buying/selling the ETF
- Example: VWRL has a 0.22% TER
Individual stocks:
- No ongoing fees
- Only transaction costs per trade
- With frequent trading, costs can add up
- At DEGIRO: €0-2 per transaction depending on exchange
Potential Returns
ETFs:
- Market-average returns (S&P 500: ~10% annually historically)
- You won't beat the market, but you won't lose to it either
- Predictable and stable
Individual stocks:
- Potential for higher returns (if you make good picks)
- Also potential for lower returns or losses
- Greater volatility
- Requires skill to beat the market
Psychology & Emotions
ETFs:
- Less emotional—you don't see individual crashes
- Easier to stay invested during bear markets
- "Set and forget" mentality is possible
Individual stocks:
- More emotional—you see company X down 30% and panic sets in
- Tempting to overtrade
- Requires strong discipline
Which Option Is for Whom?
Choose ETFs if you:
- Have little time for research
- Are a beginner
- Want to invest passively
- Want broad diversification with limited capital
- Find market-average returns acceptable
- Want a simple investment strategy
- Don't want to think about which stocks to buy
Choose Individual Stocks if you:
- Have time and interest to analyze companies
- Want to invest actively
- Think you can beat the market
- Accept higher risk/reward
- Enjoy stock picking
- Have sufficient capital (at least €5,000-10,000)
- Are emotionally stable during volatility
Hybrid Strategy: The Best or Both Worlds
Many investors combine ETFs and individual stocks:
Core-Satellite approach:
- Core (70-80%): Broadly diversified ETFs (safe foundation)
- Satellite (20-30%): Individual stocks you have strong confidence in
Example portfolio:
- 70% VWRL (World Index ETF)
- 30% your own picks: 10% Apple, 10% ASML, 10% Microsort
This gives you the diversification safety or ETFs plus the potential outperformance or good stock picks.
Popular ETFs for Beginners
World ETFs
- VWRL: Vanguard FTSE All-World (most popular in the Netherlands)
- IWDA: iShares MSCI World
S&P 500 ETFs
- VUSA: Vanguard S&P 500
- CSPX: iShares Core S&P 500
Europe ETFs
- VEUR: Vanguard FTSE Developed Europe
Dividend ETFs
- VHYL: Vanguard FTSE All-World High Dividend Yield
Common Mistakes
With ETFs:
- Buying too many ETFs: 5+ overlapping ETFs no longer equals real diversification
- Sector bets via ETFs: "Tech is hot" → all-in tech ETF = not diversified
- Ignoring costs: Active ETFs with 0.75% TER vs passive 0.15%—huge difference long term
With Individual Stocks:
- Too little diversification: All-in on 3 stocks = extreme risk
- Trading instead or investing: Constantly buying/selling = costs eat into returns
- Following hype: "Everyone's buying Bitcoin miners" → FOMO → losses
Taxes: ETFs vs Stocks
In the Netherlands (Box 3):
- Both fall under wealth tax
- No difference in treatment
- Note: Irish ETFs have an advantage regarding dividend tax
Dividends:
- Individual stocks: dividend tax withheld
- Accumulating ETFs: dividends automatically reinvested (tax-efficient)
For more info about ETFs and stocks, see Investopedia's ETF guide.
Conclusion: What Should You Choose?
For most people, especially beginners, ETFs are the best choice. They orfer instant diversification, low costs, and are simple to manage. The majority or active investors don't beat the index—so why waste time?
Start with ETFs and consider individual stocks later if:
- You've built up experience
- You have time for research
- You genuinely think you can identify specific companies
Or go for the hybrid approach: 70% ETFs for stability, 30% individual stocks for potential. That gives you the best or both worlds. The most important thing is that you start investing at all—whether through ETFs or stocks. Time in the market beats timing the market.
