Why are ETFs more recommended than individual stocks?

[Ammy]

As a new investor, I want to know the difference that, if ETFs like SPY offer seemingly low 8% annual returns with tax complexities and modest dividends, why are they recommended over individual stocks? What are the key benefits I am overlooking?

[Kaile]

Mostly investors are investing in ETFs as they are lower risk, offer instant exposure to hundreds of stocks, and provide more stability. On the other hand, individual stocks provide higher returns but with more risk factors.

ETFs mostly offer tax-efficient investment strategies because of their structure, often leading to fewer capital gains distributions than actively managed funds. So for a new investor, ETFs are best as they give broad exposure and reduce the risk factor.

[B_enjamin25]

Could it be that depending exclusively on ETFs, which are safer and offer tax advantages, might restrict the chance for substantial gains and the valuable insights gained from picking individual stocks?

[Mark]

@B_enjamin25
Relying only on ETFs offers safety, diversification, and tax benefits but can limit significant gains since they track broad market performance. Balancing ETFs with carefully chosen individual stocks combines stability with higher growth potential. It also deepens your market understanding, helping you make smarter and more informed investment decisions over time.