Do ETFs provide greater returns than stocks?

I'm a young investor (20 years old), and I have a question about investing in ETFs. I use Robinhood to invest in individual stocks, but I'm looking to put my money somewhere else to earn a greater rate of return. Will ETFs give me greater returns? If not, what will?

Investing, ETFs, Stocks
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April 2017
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Congratulations for starting to invest at the age of 20! When you choose to invest in ETFs instead of single stocks, you are attempting to capture market return and lower risk in ways that are difficult to achieve with single stocks. Companies are exposed to many risks: business risk, market risk, financial risk, along with other variables. Doing research on stocks can help you understand and minimize some of these, but single stocks have a volatility that is lower when you buy an index. It's a pretty straightforward reason; if you own an index fund of 500 companies, one poor investment choice is buffered by the other 499 positions. If you purchase just the poor choice, nothing protects your loss. Now, this doesn't mean that index funds aren't volatile, and they can lose money, however, they have lower volatility.

As you know, ETFs track indices, so they are typically less volatile than stocks. They might outperform a single stock, but it is unusual that an ETF would hit the "home run" that the right stock choice might. But remember--most investors don't hit home runs. Most portfolio managers don't, either. Consistent singles and doubles lead to long-term investing success. Additionally, ETFs can allow you to purchase riskier asset classes where single stocks might be a very bad idea. These asset classes could include, but wouldn't be limited to, small cap stocks and emerging markets. In riskier asset classes, index funds are likely a much better plan than individual stock selection where research might be difficult to obtain.

Best of luck in your investing! Be Prosperous! Peggy

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