Are stocks more volatile than ETFs?
Stocks tend to be more volatile than ETFs because their performance relies on how successfully a single company is performing.
An individual stock represents ownership of one specific company. When you buy shares of this company, you are relying on their individual success to bring you gains.
If the company performs well, this can lead to potentially greater returns. By contrast, if that company performs poorly, this may lead to bigger losses.
With ETFs, the performance depends on how the group is doing as a whole, not just one company.
One reason some investors prefer ETFs to individual stocks is that it is easier to diversify their investments.
Rather than just owning one stock in a particular sector, ETFs allow an investor to own shares in different companies in a given sector or across multiple sectors. If one company is having a bad quarter (or year), its performance could be balanced out by others that are doing well.
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