How to Start Investing

Investing can seem like it’s impossible to understand. However, with guidance and patience, anyone can invest. This TradingSim article will help budding investors start investing early to build a strong portfolio. In this article, I will also help new investors invest on their own to thrive at the end of this bear market.

How to Start Investing
How to Start Investing

What is investing?

Investing is owning a piece of a corporation. When you invest in a stock, you put money into that corporation hoping that you will increase that money at a profit. For example, say you buy Google stock at its (NASDAQ: GOOG) stock. If Google stock increases after a new Google product is released, your $100 will grow.

Google stock is a popular stock if you want to learn how to start investing

What are you investing in when you invest in the stock market?

Investing in the Stock Market
Investing in the Stock Market

When you invest in the stock market, you are buying stocks on a stock exchange. The New York Stock Exchange is the most exchanges that trades stocks. Many stocks like Nike (NYSE:NKE) and Starbucks (NYSE:SBUX) are offered on the New York Stock Exchange.

In contrast, many tech stocks like Apple (NASDAQ: AAPL) and Microsoft (NASDAQ:MSFT) are traded on the NASDAQ (National Association of Securities Dealers Automated Quotations) exchange.

All the performances of the top 30 companies on the exchanges are measured on the Dow Jones Industrial Average. If the Dow Jones rises, stocks are performing well and investments gain more money. If the Dow Jones falls, then stocks are performing poorly and your investment funds shrink.

The Standard & Poor 500(S &P 500) is an index that tracks the top 500 largest companies in the U.S. Many stocks that investors choose are in the S&P 500.

What do the symbols on the New York Stock Exchange mean?

When you’re monitoring stocks you purchase, you may see a series of one to three-letter symbols. Those symbols are called ticker symbols. For example, if you have Walmart stock, on the New York Stock Exchange, the ticker symbol would be NYSE:WMT.

On the NASDAQ exchange, tech stocks have four-letter symbols. For example, Apple stock is listed as NASDAQ: AAPL.

How do companies choose their stock prices?

When corporations go public and sell shares to investors, they issue an initial public offering (IPO). When companies list their stock on the New York Stock Exchange or NASDAQ, they list their stock at a certain price.

For instance, when Uber started selling shares to investors, the shares sold at $45. If investors buy a lot of the shares, the company’s stock price rises. If investors sell a lot of shares of a company, the company’s stock price falls.

How do you start investing in the stock market?

With trading apps like Robinhood, it’s never been easier to invest. New investors can start trading within minutes on trading apps.

A Robinhood spokeperson noted that the millions of investors have started investing through the app.

“It is not lost upon us that our company and our service have become synonymous with retail investing in America, and that this has led to millions of new investors making their first investments through Robinhood,” said a Robinhood spokesperson .

“We[ Robinhood] aim to provide the best investing experience as well as the resources customers need to get and stay informed,” added the spokesperson.

Robo-advisors and financial advisors can help you start investing

Rick Swope is vice president of investor education at E-Trade, a brokerage firm. He advises young new investors to use robo-advisors to get started in the stock market.

“Young investors who are just starting out should look to simple solutions like robos[robo advisors] and when investors graduate to more complex financial needs, like estate planning, they may turn to the services that a financial advisor can provide,” said Swope.

Then, there are options if you want to passively invest and have a computer program pick stocks for you. If you want another investing strategy, Robo-advisors are investing programs that use algorithms to help investors pick stocks.

One robo-advising trading app, Betterment, saw a 25% jump in new investors this spring. Dan Egan is Betterment’s managing director of behavioral finance and investments, He noted the increase in investing since the start of 2020.

“We have a large number of younger people who have opened up accounts and are getting started with investing,” said Egan.

Brokerage firms can help investors learn how to start investing

If you want more guidance with your investments, you can open an account with an established brokerage firm like TD Ameritrade or eTrade.

With a brokerage firm, you can more easily change your investment strategy. They can also help you rebalance your portfolios every few months to recalibrate your investment strategies.

Once you purchase a series of stocks, you have a portfolio of stocks. You can monitor that portfolio and rebalance your portfolios if you want to buy or sell stocks.

How much does it cost to invest with a brokerage firm?

While trading fees vary, there are fees for different services if you’re learning how to start investing with a brokerage firm. Mutual funds often come with high fees. If you have a mutual fund manager, discuss the fees with that advisor.

Kevin Dorwin is managing principal at wealth management firm Bingham, Osborn & Scarborough. He commented that mutual funds have fees because of their costs to brokerage firms.

“Mutual funds, for the most part, are still priced much higher because they’re harder for the brokerages to administer. And I think a lot of people use mutual funds, so they’re not really saving on that at this point,” said Dorwin.

Evan Kulak is co-founder of Polaris Portfolios, a Chicago-based financial planning firm. He noted that brokerages have many fees.

“Brokerages still charge commissions and fees on mutual fund trades, options contracts, broker-assisted trades and international securities,” said Kulak.

“Many accounts still have wire, transfer, research, and/or inactivity fees. In addition, there will likely be an increase in nontransparent fees such as such widening bid-ask spreads, sale of order flow data and low cash sweeps rates,” added Kulak.

Investors should be cautious about brokerage fees

If you have money left in your account after buying stocks or investing in other assets like gold, you have to pay fees on that as well. Steve Sanders is the executive vice president of marketing and product development at Interactive Brokers. He notes that “idle cash” that isn’t moved to a money market account is taxed.

A money market account is a high-interest savings account. If you have idle money in a brokerage account that isn’t moved, there are hidden fees.

“Those that do pay interest often require clients to sweep money into a money market account. Many people don’t think to do that or don’t have time, so the broker is able to pocket the money,” said Sanders.

Broker fees can add up for people learning how to start investing

Sally Brandon is senior vice president of client service and advice at Rebalance. She noted that even if broker fees sound small, they’re not.

“The trouble with fees is they sound small because many are less than 1%, but the reality is that many investors don’t understand what that means in dollars,”  said Brandon.

“Be mindful of the multiple layers of fees. Look for an advisor charging below 1% to manage your portfolio, invest in low-cost funds like index funds and ETFs,” added Brandon.

Spreads and market makers have an impact on investor fees

When a market maker makes a trade, they profit from the spread- the difference between the bid and the ask prices. Investors don’t usually get the market price when buying or selling a stock. Because of that, they may pay more when they purchase the stock and make less when it’s sold.

Luke Lloyd is an investment strategist at Strategic Wealth Partners. He noted that the spread between the bid and ask prices can cause more brokerage fees.

“With stocks, there isn’t much to watch out for besides the spread between the bid and ask: The bid is the best price available where somebody wants to buy a security, and the ask is the best price available where somebody wants to sell a security,” said Lloyd.

Lloyd noted that brokerage fees make money when investors buy stock at the market price.

“If you want to buy at the market price, you will pay a couple percent premium to buy it. Some brokerages make money on that spread. It’s just something you want to look out for when placing an order,” said Lloyd.

Many online traders are free for people learning how to start investing

If brokerage firm fees are too confusing, there are many commission-free alternatives. In addition to Robinhood, established firms like Charles Schwab are also offering commission-free online trading.

JMP Securities’ Devin Ryan wrote in a note to clients that Robinhood accelerated the change to make it easier to start investing.

“Free trading isn’t a new theme in the industry, but the cadence of announcements from firms offering zero-commission trades seems to be picking up, and we also note that many of these companies have more credible platforms (and capital behind them) than the offerings of the past,” wrote Ryan.

While new trading apps are flashy, Scott Coyle, CEO of Click IPO, isn’t impressed by them. He thinks that other dealers offer more financial infomation to new investors than Robinhood.

“These broker- dealers that have been around much longer have more robust platforms, they offer a lot more things than some of the newer free-trading firms do,” he says.

How can you save for investing?

Savings
Savings

No matter how much you spend on investing, it’s crucial to have an investing budget. With that budget, investors can delve into the stock market without losing too much money.

When you invest in a stock with a broker, you can place a stop-loss order. When you place a stop-loss order, you can have a broker sell a stock when the price drops below a certain point.

For instance, if Uber stock plummets below $45, you can place a stop-loss to sell the Uber stock. When you place a stop-loss, you can prevent yourself from losing too much money when a stock’s price plummets.

In addition to stop-losses, you should have an emergency fund to cover losses. Since the stock market is so volatile, it’s crucial to have money to cover trading expenses and losses. Personal finance expert Ramit Sethi advises investors to have an emergency fund.

“An emergency fund is money saved for any unexpected expenses. It gives you the piece of mind knowing you have a hedge against the worst financial disasters,” wrote Sethi.

How to start investing with 401ks

If you have a 401k or 403b retirement account, you’re already investing. When you work for a corporation that offers a 401k, your employer has helped you start investing in stocks. If you work for a non-profit, you likely have a 403b account. A group of stocks comprises a 401k.

Since an employer deducts a certain amount of your paycheck, you’re investing a portion of your income into the stock market. If you want to start investing more gradually, you can increase the 401k deduction to invest more in the stock market.

Kelly Lannan is vice president of young investors at Fidelity Investments. She advocates investors having automatic deductions from their accounts to contribute to 401k’s.

“Some people really benefit from this automated approach as the money is never in their bank account to be tempted to spend,” says Kelly Lannan, vice president of young investors at Fidelity Investments.

If you don’t make any premature withdrawals before the age of 59, you can get your 401k account money tax and penalty-free. You have to withdraw your funds from a retirement account after you turn 72.

529 plans can help you invest for children’s tuition

In addition to 401ks, you can invest in 529 plans. If you have children and want to save for their tuition, 529 plans are a good option. These state-run programs are often offered by brokers. An investor can set aside money into the plan until their child is ready to attend college. Those funds can be withdrawn to use for tuition.

This investment plan lets investors contribute up to $15,000 to beneficiaries tax-free. Jim White is the founder of J.H. White Financial. He recommends that people learning how to invest should contribute to 529 plans to save for their offspring’s future.

“529s are still the best savings tool for college tuition. Any of the various alternatives frequently mentioned either have contribution limits or lack tax benefits,” said White.

Ksenia Yudina is CEO of U-nest and touts the versatility of 529 plans.

“529 plans can now be used for virtually any kind of education expense, not just college. You can even use them to pay down your own college loans,” says Ksenia Yudina CEO of U-Nest, a 529 investment app.

A change to a tax law in 2017 helps more parents who want to invest in 529 plans. Ben Birken is a financial advisor with Woodward Financial Advisors in Chapel Hill, North Carolina. He commented that the new law expands to let parents contribute to the plans for K-12 education. Parents can contribute to 529 plans to pay for tuition for private elementary and high schools in addition to colleges.

“For most people, this change doesn’t amount to much due to the high cost of private school and the limited amount of time that would be available for tax deferred/tax-free growth,” he says.

How much should you invest in 529 plans for your kids’ tuition?

When parents invest in 529 plans, there are questions about how to invest in these plans and when. White believes that dollar-cost investing is best in this volatile stock market. Dollar-cost averaging for 529 plans is contributing more to the account when the stock market is down. In contrast, you can contribute less to the account when stock prices are up.

“While the (recent market) volatility has not changed my view on 529s, it has strengthened my opinion that monthly savings in age-based target portfolio is the way to go,” said White.

“You cannot predict the future and trying to do so usually doesn’t end well. Dollar-cost averaging in an age-based portfolio that will slowly reduce risk as the student approaches college is simple and prudent and doesn’t require trying to remember to reallocate,” added White.

What approach should you take to invest in 529 plans?

Katie Vercio is a 529 expert and a wealth consultant at Evergreen Wealth Consultant. She recommends that parents take a cautious approach to investing in these plans if their child is entering college soon.

“If a child is in high school, I would recommend taking a conservative track. If a child is starting school in fall 2019, it may be a good idea to switch to a cash or (a certificate of deposit) option,” said Vercio.

Emily S. Boothroyd is a private wealth advisor at Price Financial Group. She advises parents to invest for their financial future first before investing in 529 plans for their children.

“For younger parents or those who are focused on their own financial planning, please use the oxygen mask analogy when thinking of your kids: Help yourself first, then them,” Boothroyd says.

“If you have credit card debt, you probably should not be adding to a 529. If your retirement isn’t on track, you probably shouldn’t be adding to a 529,” added Boothroyd.

When you’re starting to learn how to start investing to save for your kids’ future, 529 plans can be a prudent choice.

Where can you practice how to start investing?

If you want to practice trading stocks before investing real money, TradingSim is a great place to start. You can practice buying and trading stocks by simulating trades on TradingSim. By simulating trades with your account, you can learn risk-free about how to start investing.

What else can you invest in when you learn how to start investing?

In addition to stocks, you can invest in other assets as well. You can invest in mutual funds, ETF’s, or foreign currency exchange(forex) as well. Many of them can be purchased through online brokers.

Mutual funds are low-risk investing options

Mutual funds are a collective investment fund that combines money from different investors to buy hundreds of stocks. Because they’re considered low-risk investments, they’re usually included in 401k retirement accounts.

Index funds are mutual funds that match the stocks that comprise stocks that are usually in the S&P 500. Warren Buffett is a legendary investor that became a billionaire through his shrewd investments. Because he usually makes low-cost investments, he advocates for investors to pick index funds.

Warren Buffett
Warren Buffett is an expert in advising people learning how to start investing

“Most institutional and individual investors will find the best way to own common stock is through an index fund that charges minimal fees. Those following this path are sure to beat the net result [after fees and expenses] delivered by the great majority of investment professionals,” said Buffett.

Mutual funds and index funds are low-cost, low-risk options for people who want to know how to start investing.

Bonds are a stable option for learning how to start investing

Bonds are another asset that you can invest in as well. While stocks mean you own part of a company, bonds mean that a company owes you a debt.

When a corporation or government wants to fund a project, they issue bonds. Bonds are issued by corporations and the U.S. government to fund projects. When they issue bonds, they’re essentially IOUs to investors. The corporation or government promises to pay off the debt with interest within a certain amount of time at a fixed interest rate.

For instance, if you buy a company’s bond for one-year at $10,000 at 5% interest, you have a fixed-rate coupon bond that pays the same rate over time. After a year, you would get $500 in interest from the bond.

Throughout history, U.S. government bonds have a record of strong returns. Saturna Capital portfolio manager Bryce Fegley said that U.S. government bonds were issued to investors and had strong value.

“During the Great Depression, U.S. government bonds were among the only investments that retained their value as the government was one of the only institutions that could be trusted to make payments in a hostile economic environment,” said Fegley.

Diversification of investment is key

When you start investing, you may want to just focus on one stock that you’re familiar with to play it safe. However, having a wide range of stocks can be a better way to increase profits. When you own a lot of different stocks and other assets, you have a diversified portfolio.

Josh Barrickman is a senior portfolio manager at investment firm Vanguard. When he advises investors, he says that holding many different stocks and bonds can help increase profits in the long run.

“By potentially holding hundreds – sometimes thousands – of bonds in a single fund, you get more diversification than you would (by) buying individual bonds,” said Barrickman.

If one industry is underperforming, diversification in other stocks and bonds can help. If you have stocks in the airline industry and they tumble during the COVID-19 era, you can recover. When you have investments in better-performing industries like tech, you can keep your portfolio healthy and increase profits.

ETFs can be a good option if you’re learning how to start investing

In addition to bonds, ETF’s (exchange-traded funds) are a good option if you want to learn how to start investing. Exchange-traded funds are a basket of stocks and bonds for investors to pick.

While ETFs sound similar to mutual funds, there are differences. ETF’s tend to track an index like the S&P 500. Jay Jacobs is senior vice president and head of research and strategy at Global X ETF.

Schwab ETF is a popular choice for people who are learning how to start investing

He says that investors should invest in tech ETFs if they’re learning how to start investing. His ETF contains stocks like Zoom(NASDAQ:ZM) and Netflix (NASDAQ:NFLX). Jacobs noted that many people use cloud computing stocks are a good choice to invest in as part of an ETF.

Zoom stock
Zoom stock is part of many tech ETFs

“These are companies that we can’t survive without, whether it’s video conferencing, whether it’s chat functions, whether it’s accessing data and being able to do remote work. Cloud computing technologies are at the very center of every part of our daily lives, and they’re proving it,” said Jacobs.

“These are very valuable companies that are just really beginning to take off for what we think is a long-term structural trend,” added Jacobs.

Forex is an international option if you want to know how to start investing

If you want to explore investing outside of the U.S. stock market, forex or foreign exchange trading is an option. Forex or FX trading involves trading different currencies. For example, the U.S. dollar is traded against another currency, like the Japanese yen. If the American currency rises and the yen falls, an investor can make a profit.

Robert Johnson is professor of finance at Creighton University’s Heider College of Business. He explains FX trading to people learning how to invest.

“The FX market does not set a currency’s absolute value but rather determines the value of one currency relative to another. You can take a position in virtually any major currency against another major currency in the FX market,” said Johnson.

Sergey Savastiouk, CEO of Tickeron, a market intelligence platform that assist users with portfolio and trading decisions on assets like foreign currency. He says that forex trading can be safe if investors choose a reputable firm like IG or Forex.com.

“Forex trading is safe if you properly select a brokerage account and firm,” said Savastouk.

Forex trading requires patience and extra funds

While forex trading can be exciting, people learning how to start investing should exercise caution. Even forex trading firms warn that investors can lose 70% of their funds in forex trading. Johnson notes that there are different aspects to forex trading. While stock values can rise over time, there isn’t the same growth with foreign currency.

“Investing in currencies, whether traditional currencies or cryptocurrencies, is fundamentally different than investing in stocks, bonds or real estate. “Over the long term, investing in the stock market is a positive-sum game,” said Johnson.

“Over both the short and long term, investing in currencies is a zero-sum game,” Johnson says. “When the U.S. dollar strengthens versus the yen, those holding U.S. dollar positions win and those holding yen positions lose an equal and opposite amount.”

Forex trading can be a good start to learn how to start investing. However, you need a lot of capital to start and a lot of patience.

How do you invest in real estate when you start learning how to start investing?

In addition to forex, you can invest in real estate. If you invest in real estate, you can invest in real estate investment trusts or REIT’s. These trusts are owned by companies that own assets like buildings and warehouses. Public Storage( NYSE: PSA) is an example of a REIT because the company owns several storage warehouses. Investing in REITs is a way to generate passive income from real estate.

Public Storage is a popular REIT to invest in

Investments in REITS can be lucrative, according to David Lebovitz, global market strategist at JPMorgan Asset Management.

“We believe it is about combining REITs and direct real estate, particularly given that REITs provide greater exposure to more forward-looking sectors,” he said.

“We still see value in direct real estate as a source of income, and more broadly, as a portfolio diversifier,” added Lebovitz.

Investing in real estate can be lucrative for people learning how to invest

In addition to REIT stocks, people learning how to invest can choose commercial real estate. With research and a lot of capital, you should find the best mortgage lender, lawyer, and other support to start buying real estate. With low interest rates, purchasing real estate is easier if you want to start learning how to invest.

You can also act as a loan processor and focus on making commissions on loans you originate.

Now this is not passive income like stocks or rental incomes, but another investment stream.

How is the real estate industry for people learning how to invest?

While there is a decline in house sales, the housing market is poised to rebound. Dhruv Arora, CEO of digital wealth manager Syfe, said the real estate market is resilient.

“In most historic recessions, the property market has either remained largely resilient or was only impacted across certain real estate sectors,” noted Arova.

In Australia, Trent Wilshire, an economist at the Australian property site Domain, notes that the economy restarting will help real estate.

“Transactions will start rising again in coming weeks but are still likely to be sluggish compared to late 2019/early 2020.“We’re already seeing a pick-up in recent weeks, with new ‘for sale’ listings rising the past few weeks and rising inquiries on Domain from potential buyers,” said Wilshire.

Where should you invest in the real estate market?

In addition to the real estate market overall, investors should look at the best locations. Kristina McPherson, a real estate agent at The Corcoran Group in Palm Beach, Florida, notes that the key to investing in real estate is location, location, location.

“You can look at all of that information and make a determination on which specific city in a state that you want to invest in,” said McPherson.

“It really varies on the specific location,” she says. “If you’re two blocks off the intercoastal [waterway] here, it’s suddenly a different price than if you’re right on the intercoastal,” added McPherson.

Vered Raviv-Schwarz is a chief operating officer of Guesty, a technology platform in the vacation rental market. She wants investors in real estate to consider the type of property they want to buy and how long they want to rent the property.

“If you buy a property in a ski resort, is it also available for summer holidays like hiking trips in the area? “If so, then you’re also likely to have occupancy in the summer months, too. When “it’s near a major city, long-term rentals may make sense,” said Vered Raviv-Schwartz.

Real estate experts like Noah Rosenfarb, the founder of Florida-based Freedom Family Office notes that investors need a lot of capital to invest in real estate. The amount of capital needed depends on how much rent you want to charge tenants.

“If the rent is $1,000 a month, then you should pay $100,000,” he says. “If you’re going to buy a condo for $250,000, you should hope that the monthly rent is $2,500. When ” it’s only $1,800 you’re going to have a tough time servicing the debt, paying maintenance, covering the taxes and so on.”

What do financial experts want to tell people who want to learn how to start investing?

Christine Benz is the director of personal finance for Morningstar, an investment research firm. She noted that individual stocks may not be the best first choice when you’re learning how to start investing.

“I’ll say it: Individual stocks are terrible investments for people just starting out,” said Benz.“[W]e[ Morningstar] haven’t talked enough about how poorly many small investors are apt to do with individual-stock purchases, especially if they’re just learning.”

How can you save and invest?

If you’re insure how much to invest, you can start with small amounts, even as little as $100. Josh Simpson is an investment advisor representative with Lake Advisory Group. He says that his clients started investing with very little money.

“Some of the wealthiest clients that I have started off investing small amounts of money when they could,” Simpson says.

Christine Benz is the director of personal finance for investment research firm Morningstar. She advocates for people learning how to invest to still save a significant amount of their income.

“Unfortunately the key to financial success is incredibly mundane — it’s disciplined savings,” she says. “Your savings rate is, by far, going to be the biggest determinant of how you do financially over time.”

starbucks stock
Starbucks stock is a good choice if you want to learn how to start investing

Benz also wants investors to diversify their portfolios.

“I think it makes sense for young folks to have more of a globally diversified equity portfolio,” Benz says. “You can buy a total world stock index fund — one fund that gives you exposure to every economy on the planet, practically.”

Learning how to invest can pay off with patience and education

Unless you are like Jordan Belfort who clearly can make money legally just as easily as he did illegally, you will need to have a long-term game plan.

When investors are learning how to invest, there are many options. With research from simulating trades on TradingSim, expendable capital, and a lot of patience, any can learn how to start investing to build their financial futures.

Stocks and ETF’s (exchange trade funds) are different, but still potentially profitable for investors. Investors can choose from many high-profile growth stocks.  ETF’s can have lower risk than stocks because they have diverse holdings. But which one is best for long-term investments? This TradingSim article will tell readers the difference between stocks vs. ETF’s, compare the performance between stocks and exchange-traded funds. This article will also analyze and compare the 10 top stocks and ETF’s performance in the stock market and determine which investment product is best for investors.

Stocks let investors focus on one company

Stocks are individual shares of a particular company. A company can offer shares of a company to raise funds or various other reasons. When an investor picks a low-risk value stock like Apple(NYSE:AAPL), an investor owns a piece of Apple. US stocks can trade on the New York Stock Exchange or NASDAQ. A stock’s value can fluctuate based on whether there is a bear market or a bull market. Investors can have their say in shareholder meetings and be an activist investor if they want more say in how the company acts in the future. Companies offering stock also can offer quarterly dividends to investors as well.

Stocks vs ETF’S- stocks offer individual shares and are more volatile.

Stocks focus on one corporation but are very volatile. Outside forces in the stock market or the corporation’s own fortunes can reverse, driving a stock down. Stocks are very volatile and can be risky for investors looking for long-term options.

Stocks vs. ETF’s: Stocks may be better for tax purposes

When comparing stocks vs. ETF’s, stocks may be better for investors that are concerned about tax benefits. Benjamin C. Halliburton, chief investment officer at Tradition Asset Management said individual stocks offer an advantage.

” Individual stocks are more tax-efficient than mutual funds and should be utilized in taxable portfolios when the investor has enough assets,” said Halliburton.

ETF’s offer a basket of stocks and securities

ETF’s buy stocks, bonds, and commodities into a basket. Similar to stocks, ETF’s are sold shares of the basket holdings to investors on the New York Stock Exchange, the American Stock Exchange, and NASDAQ. Another similarity between stocks and ETF’s is that they both offer quarterly dividends to investors just like stocks.

In contrast to stocks, ETF’s are a collective investment. Just as there are thousands of different stocks, there are numerous ETF’s for investors to choose as well. Some are from mixed industries. There are ETF’s for everything from gold to marijuana. while others may focus on one sector, like tech. ETF’s can also have holdings from other countries, while New York Stock Exchange stocks are only U.S.-based.

In the comparison of stocks vs. ETFs, both ETF’s value can fluctuate like a stock. ETF’s often mirror the movement of the stock market. So, any decline in the stock market could greatly negatively impact ETF’s .

ETF’s are also different from stocks because they offer inverse ETF’s. Inverse ETF’s are created to profit when there is a decline in the markets. They’re best for short-term investments because they use derivatives that are sold every day by the fund’s managers. Inverse ETF’s can lead to losses if held more than a day. However, inverse ETF’s can be less costly than shorting stocks.

John Hood, president and portfolio manager at JC Hood Investment Counsel, noted that inverse ETF’s could be risky for investors.

“When you’re dealing with inverse or leveraged ETFs, you’ve left the investor market and entered the gambling market,” he says, adding that many investors don’t understand the product before buying. “I’ve had people call me and say that they have a leveraged two-times ETF and, as the market has been going up, their ETF has been going down. Well, they didn’t read the details first.”

Stocks vs. ETF’s: How do they compare with liquidity?

Stocks and ETF’s differ slightly with liquidity. Liquidity is the conversion of stocks or ETF’s into cash. Penny stocks that don’t have as much value as stocks with bigger names may not have as much liquidity. However, blue-chip stocks like Microsoft (NASDAQ:MSFT) offer more liquidity than ETF’s because different factors affect and ETF’s liquidity. ETF liquidity depends on the fund’s trading volume and the quality of the ETF’s products. Stocks offer an advantage over ETF’s if investors are looking for easy liquidity.

How did the top stocks and ETF’s perform during the bull market?

While stocks grew exponentially during the bull run, ETF growth exploded from 2009-2018.  With ETF’s that tracked along with the S&P, they both rose equally during the bull market to $4 billion in assets by 2019. As the S&P climbed 14% in 2016, ETF volume also surged 17% in 2016. John Davi, founder and chief investment officer of Astoria Portfolio Advisors, noted that ETF’s that followed the S&P 500 and minimized risk exceeded expectations. 

“If you look at all the ETFs that have gathered the most assets over the last 10 years, it’s going to be your SPY, your EFA, EEM, so, those are low-cost, pure-beta ETFs, like your standard wealth management solutions. So, USMV is the largest asset gatherer outside of that core, so I like it. It hedges the downside risk,” said Davi.

How do the top 10 stocks vs. ETF’s in recent performance?

During the current bear market, stocks and ETF’s have different returns on investments. TradingSim’s charts will be used to analyze the top 5 performing stocks and ETF’s of March 2020 since the COVID-19 crisis started. While both stocks and ETF’s can’t be exactly compared based on performance, the analysis will show a broad overall comparison. The comparative data will show which perform better for long-time investors.

Clorox outperforms other stocks during coronavirus crisis

Clorox (NYSE:CLX) had a 24% gain over the past month. Because of the coronavirus crisis, the cleaning product company has seen a double-digit gain. Clorox has become a safe-haven stock in the midst of the COVID-19 crisis. While there is competition from store-brand disinfecting wipes, shoppers and investors flocked to Clorox over the past month as a trusted name brand during the coronavirus crisis. In addition to cleaning wipes, Clorox also makes hand sanitizer, a sold-out product during the current pandemic.

Clorox stock boomed and increased 17% overall since the start of the year. The household product industry is typically recession-proof and outperform the S&P 500. Clorox stock was also helped by the Environmental Protection Agency. The EPA recently recommended many Clorox products for Americans to use, which helped the company’s stock rise as well.

“Using the correct disinfectant is an important part of preventing and reducing the spread of illnesses along with other critical aspects such as hand washing, ” said the EPA in a statement.

During the coronavirus pandemic, financial analyst Steven Strycula predicts that Clorox will likely be a well-performing stock that investors can invest in for good returns.

“Based on conversations with retail buyers, we estimate COVID-19 related demand could boost baseline disinfectant category trends by 3-5x in the next few months as retailers work to rebuild inventory and stay in stock,” said Strycula.

This TradingSim chart shows Clorox’s stock rising the week of March 19.

Clorox stock the week of March 19

Vanguard Total Stock Market ETF

Of the many ETF’s offered, some ETF’s from Vanguard have fallen below expectations. Vanguard Total Stock Market ETF (NYSEMKT:VTI) is one ETF that is down 14% year-to-date. Because this ETF tracks the overall stock market, the fund has stumbled over the last month. Davi noted that Vanguard ETF’s will perform eventually perform well despite the current stock market volatility. He noted that since ETF’s launched in 1993, they have been a low-risk option for investors. 

“For my money, we prefer a little bit more transparency than less in general, but I’m always amazed about the ETF product,” said Davi. “I’ve been working in the ETF ecosystem for 20 years. I remember when iShares first launched 25 ETFs in one day. People were like, ‘Why do you need a single country? Why do you need a subsector ETF?’ And sure enough, we have an entire industry now. So, there’s always a market.”

This TradingSim chart shows the trajectory of the Vanguard Total Market ETF.

Vanguard Total Stock Market ETF

Davi notes that the recent $1.9 billion inflow into the Vanguard Total Stock Market ETF shows that this ETF can be resilient. Because the fund has shares of well-performing stocks like Walmart (NYSE:WMT), Davi feels that the ETF can bounce back.

“I think, overall, things feel a little bit more normal. I know the economic front is going to look pretty bad and it’s going to look real ugly in terms of unemployment claims, but price action on the ETF front has been encouraging. There’s actually been more inflows into ETFs, too. So, Vanguard took in a bunch of money in Q1 and I think [it] shows that the retail investor has been kind of hanging in there for the most part,” said Davi.

In this stock vs. ETF comparison between Clorox stock and Vanguard Total Stock Market ETF, Clorox has the edge.

SPDR Consumer Staples Select Sector Fund outperforms during coronavirus crisis

Just as Clorox stock and consumer staple stocks have performed well during the COVID-19 crisis, consumer staple ETF’s have also done well despite Wall Street volatility. The SPDR Consumer Staples Select Sector Fund (NYSEARCA:XLP) has been a safe haven ETF, according to investor Kent Thune.

“When information and data are short or absent, an investor must use their intuition, which comes from a combination of experience and educated guesses. In the short-term, no one knows where the market is headed. But it’s a reasonable bet that the U.S. is already in a recession, which will last months, not weeks,” said Thune.

The TradingSim chart below shows the strong performance of the SPDR Consumer Staples Select Sector Fund.

SPDR ETF Consumer Staples Select Fund

David Reyes, a financial advisor and chief financial advisor, noted that ETF’s like Consumer Staples Select Fund could be best for beginning investors.

“The best thing about index investing is that it is simple,” said Reyes. “Most investors are not comfortable managing stocks, so this is a great way to get exposure to the stock market without having to be a stock expert.”

SPDR’s Consumer Select Fund has the most holdings with Proctor & Gamble. Those consumer products have been popular with toilet paper and cleaning products being high in demand. The ETF is down 17.3%, year-to-date, but is still one of the top-performing ETF’s in this Wall Street volatility. It’s only down 6% from its record high in February.

The ETF could help improve the portfolio of long-term investors. In comparison between stocks vs. ETF’s, both Clorox and SPDR’s Consumer Select Fund are both equally strong investments for traders looking for long-term investment.

Gilead stock grows with possible COVID-19 treatment

In addition to consumer staples, biotech stocks have grown during the coronavirus pandemic. Gilead Sciences ( NYSE: GILD) stock has grown 24% over the last month and 15% since the start of 2020. The biotech company’s stock rose after the corporation developed an experimental drug, remdesivir, to treat COVID-19. Financial analysts at SunTrust Humphrey Robinson expressed optimism that the drug showed promise. However, they couldn’t make conclusive judgments about the drug since it was tested on a small group.

“We believe remdesivir could show benefit and clinical improvement; however, we cannot draw definitive conclusions from a compassionate use data given the limitations (such as small sample size, lack of controls and randomization and short follow-up periods),” wrote SunTrust Humphrey Robinson analysts.

Dr. Jonathan D. Grein, director of hospital epidemiology at Cedars-Sinai Medical Center in Los Angeles, also expressed cautious optimism about the effectiveness of remdesivir.

The TradingSim chart below shows the rise of Gilead stock.

Gilead stock the week of March 19

“We cannot draw definitive conclusions from these data, but the observations from this group of hospitalized patients who received remdesivir are hopeful. We look forward to the results of controlled clinical trials to potentially validate these findings,” added Grein.

On top of Gilead’s promising COVID-19 medication, Gilead is dominant in medications for chronic diseases like arthritis. The corporation also has the best-selling HIV drug that has increased sales. Because of Gilead’s rising stock and biotech’s growth during the coronavirus crisis, the stock has been a solid buy for long-term investors.

SPDR S&P Biotech ETF strong despite Wall Street downturn

Gilead is a holding in the SPDR S&P Biotech ETF( NYSEARCA:XBI). The biotech ETF been performing better than expected in this economic downturn. While the ETF’s performance dropped 20%, the SPDR Biotech ETF was still outperforming the S&P 500 before the COVID-19 crisis. The low-expense ratio of 0.35% makes the SPDR S&P Biotech ETF an affordable option for investors. The ETF is still performing well compared to other biotech ETF’s with many biotech stocks in its basket .

The TradingSim chart shows the performance of the SPDR S&P Biotech ETF the week of March 19.

SPDR S&P Biotech ETF

Gilead has edge in biotech stocks. vs ETF fight

Both Gilead and SPDR Biotech are equally good options for biotech investors. In a comparison of stocks vs. ETF’s, because both are in a field with large growth potential, they are possible great options for investors. However, Gilead has an edge over SPDR S&P Biotech ETF with greater gains over the last month.

Activision Blizzard stock steady as gamers have more time to play

During the nationwide quarantine, gamers have been getting a lot of practice playing Call of Duty. Activision Blizzard(NASDAQ:ACTI), the company that produces the popular video game, had its stock rise 2% over the last few days after financial analyst Eric Handler upgraded the stock from neutral to a buy.

“We believe management is making significant progress in improving its near-term and long-term growth profile,” said Handler.

Activision is also highly rated by other financial analysts. Todd Gordon, managing director at Ascent Wealth Partners, noted that Activision has a strong standing because of its popular games.

“Activision’s the bigger of the two. It’s a $46 billion market cap. They’ve got franchises like Call of Duty and Candy Crush. They have a better share of mobile gaming. Activision is well-represented across multiple platforms including PC, console, gaming, stuff like that. So, we hold Activision in our global growth portfolio,” said Gordon.

Activision Blizzard teams with WHO to reach more gamers

Gaming has even received a boost from the World Health Organization. The organization tweeted its support of gaming.

“We’re at a crucial moment in defining outcomes of this pandemic. Games industry companies have a global audience – we encourage all to #PlayApartTogether. More physical distancing + other measures will help to flatten the curve + save lives,” tweeted the World Health Organization.

Activision stock the week of March 19

Activision Blizzard stock is a stock that is a strong one for long-term investors who want a piece of the growing gaming industry.

Even though Activision Blizzard stock is down 1% this year, that’s still below the S &P’s decline of 11%.

Gaming stocks vs. ETF’s: Van Eck’s Gaming and Sports ETF performing well during quarantine

In addition to Activision performing well, the stock is part of a rival ETF (NERD). The ETF that’s competing with Activision’s ETF is Van Eck’s Gaming and Sports ETF (ESPO). is up 5% this year. Esports is also a bright spot in the stock market. Business Insider Intelligence noted that esports are growing since other physical sports are on hold during the quarantine.

“Total esports viewership is expected to grow at a 9% compound annual growth rate (CAGR) between 2019 and 2023, up from 454 million in 2019 to 646 million in 2023. That puts the audience on pace to nearly double over a six-year period, as the 2017 audience stood at 335 million,” stated Business Insider Intelligence.

Tony Hershey, a gaming stock expert, said that esports stocks and ETF’s can be profitable.

This TradingSim chart shows the trajectory of the Van Eck’s Gaming and Sports ETF.

Van Eck’s Gaming and Sports ETF

“You’re now seeing [the market] differentiate between sectors and areas that can actually perform here [given the current environment, and] the data points are bearing it out,” said Hershey.

“If anything, I see current circumstances as accelerating a shift from physical to digital,” he added. “Esports are uniquely positioned relative to traditional sports to thrive in such an environment.” 

With gaming stocks vs. ETFs, ETF’s have edge

VanEck product manager noted the success the gaming ETF can have during this stay-at-home time.

“Video game and esports stocks are uniquely positioned to weather this economic recession in which the vast majority of the population is forced to stay inside for extended periods of time,” said VanEck product manager John Patrick Lee in a recent note.

“Across the spectrum of the industry, including live-streaming, esports competition and concurrent users playing, analysts have noted a significant increase in the number of people logging on to play video games. What are people going to do if they are stuck at home for an extended period of time on a mandatory lockdown? Play video games—with themselves and each other.”

With the gaming stocks vs. ETF’s comparison, Van Eck’s Gaming and Sports ETF has a slight edge because of its diversified gaming and esports holdings.

 

Google stock strong with Apple partnership

Another tech stock, Google parent Alphabet (NASDAQ:GOOG) saw its shares jump by 5% after announcing its partnership with Apple(NYSE:AAPL). The two competitors will join forces to create a COVID-19 tracking system on iOS and Android phones. The partnership will likely continue to boost Google’s’ stock. Google’s CEO Sundar Pichai, noted that its growth in cloud computing will help Google’s stock perform well in the volatile stock market.

“Our investments in deep computer science, including artificial intelligence, ambient computing and cloud computing, provide a strong base for continued growth and new opportunities across Alphabet,” said Pichai.

Google hit by COVID-19, but survives with YouTube

Google stock had fallen 27% since the coronavirus crisis started. Suntrust Humphrey analyst Youseff Squali noted that Google’s other businesses have been heavily impacted by the recent economic slowdown.

“A number of key verticals for Google have been hard hit by the coronavirus, social distancing and an overall economy that’s being brought to a standstill. Those include travel, lodging, autos and retail,” said Squali.

Even though many tech companies are suffering from declined advertising, Google is still staying afloat. YouTube is still a strong part of Google’s properties. The popular video on- demand service is predicted to make $9.33 billion in 2020. Squali agreed that YouTube will help Google’s bottom line.

This TradingSim chart shows the volatility of Google(Alphabet stock).

Google stock the week of March 19

“On the other hand, given YouTube’s ability to function as a medium to host both entertainment and news content, we believe it has particularly benefited from increased users and usage, as COVID-19 has forced social distancing and people to stay at home,” said Squali.

Financial experts say Google will survive advertising drought

Citi analyst Jason Bazinet said that he expects Google to remain a strong buy for investors.

“We[Citi] expect Google to have a greater near-term disadvantage but also have a faster recovery as pandemic effects reduce… We believe Alphabet will be more resilient vs. Facebook in weathering the advertising decline due to its lower exposure to the [small business] advertiser base,” said Bazinet.  

Google is a high-profile, but undervalued stock. The tech stock’s trading at only 25 times its earnings. The tech giant is a great buy for long-term investors.

Invesco QQQ Trust Series One pivotal in tech stock vs. ETF fight

Invesco QQQ Trust Series One is an ETF that has underperformed overall, but is still outperforming the S&P 500. The ETF often touts its tech holdings.

Invesco QQQ Trust Series One ETF

 

“Nasdaq-100 companies (are) nimble and at the forefront of numerous long-term investment themes that are still in their infancy, such as big data, cloud computing, machine learning and automation,” states Invesco. 

Even though Invesco QQQ Trust Series One is down 16%, the ETF is still going to survive because it’s heavy in tech stocks. Bob Phillips, managing member of Spectrum Management Group, said the Invesco QQQ Trust Series One could still be a strong buy. The majority of its $86.5 billion in assets are in tech stocks. Tech stocks are still a pivotal part of many ETF’s.

 

“I think tech stocks are a good place to dip your toes back into the water, that makes total sense to me. It’s their ability to access cash at very favorable borrowing levels and their growth prospects because our economy is going to grow again, and tech will be key component of where that growth will come from, ” said Phillips.

Tech stocks help Invesco QQQ Trust Series One, but Google wins stocks vs. ETF battle

Investor Kent Thune noted that Invesco QQQ Trust Series One will still has tech stocks that will help the ETF remain viable to investors and “[t]he QQQ’s inclusion of communications services stocks like Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOG) and Netflix (NASDAQ:NFLX) help ensure its viability amid growing social distancing initiatives.”

Jan Hazius, chief economist at Goldman Sachs, notes that tech ETFs may be a strong choice to survive the Wall Street volatility.

“Financial markets have started to take a more positive view of the outlook. The initial improvement was mostly policy-driven, but the greater optimism of the past week seems to be at least partly related to the virus itself, ” said Hazius.

While the Invesco QQQ is strong and contains Google stock, Google stock on its own is a stronger long-term investment based on its perseverance and future partnerships.

Kroger stock rises as shoppers rush stores

In addition to tech stocks, grocery store stocks have increased as well. Kroger (NYSE: KR) stock rose 20% when Americans rushed grocery stores. Even before the COVID-19 crisis, Kroger’s online sales increased 29% as well. Kroger’s CEO , Rodney McMullen, notes the strong sales that the grocery store chain was having recently touting the success of the stores.

“After experiencing strong sales in February, the COVID-19 pandemic triggered a significantly greater lift in sales across both physical retail stores and digital channels in March,” noted McMullen.

The TradingSim chart below shows the jump in Kroger shares.

Kroger stock

Because of the designation as an essential service and increased hours, Kroger will increase the pay of its workers.

“Our associates have displayed the true actions of a hero working tirelessly to ensure everyone has access to affordable, fresh food and essentials during this national emergency,” said McMullen.

Kroger a strong buy after Buffett pick

Kroger is such a strong buy that Warren Buffett purchased $550 million worth of the chain’s stock. It’s unclear whether the stock surge will last after this crisis. However, after the pandemic, Kroger stock is a strong solid pick for long-term investors that want to invest in a company with growth potential.

Kroger is a solid stock with a healthy dividend that would be a good pick for long-term investors that want shares in a grocery company.

First Trust Nasdaq Retail ETF has slight gain during coronavirus crisis

A retail ETF that is performing well during this crisis is First Trust Nasdaq ETF (NYSEMKRT:FTXD). The retail ETF if performing well with stock grocery stocks like Walmart (NYSE:WMT).

The retail ETF has been performing well as many shoppers have panic shopped in the wake of the COVID-19 crisis. The First Trust Nasdaq Retail ETF has been down 19% year-to-date, but has been up 1% over the past month.

In the battle between the First Trust Nasdaq Retail ETF and Kroger, Kroeger seems to have an advantage based on previous data of more growth over the last month.

Would Fed’s buying ETF’s give them an edge?

Aside from individual comparisons, there will be a government intervention that could shake up the stocks vs. ETF’s war. The Federal Reserve will buy a series of corporate bonds through ETF’s in order to boost the stock market. Dave Nadig, chief investment officer and director of research at ETF Trends, noted that the Fed buying the ETF’s could improve ETF returns-but only for a little while.

“Short term, of course, we know what this means: buying pressure that’ll bring up the price of the ETFs,” said Nadig.

Nadig noted that the Fed purchasing ETF’s won’t be a game-changer against stocks overall. He believes government intervention won’t help ETF’s in the long run.

“I think it’s really important to understand: this is not the federal government buoying the entire market, necessarily. They’re explicitly not going to be buying ETFs that come up at a premium. So, if they manage to sort of re-establish equilibrium in the market, theoretically, that stops the purchasing and then the market can go back to resetting prices,” said Nadig.

Which stocks and ETF’s would be best for long-term investors?

The previous analysis shows that tech, consumer staples, and even gaming stocks can have long-term potential.  However, tech stocks like Google appear to have the best potential for long-term investment because it’s able to evolve with new technology. Large capitalization tech stocks like Google compose about 20% of the S&P 500. They have risen since the coronavirus pandemic.  Tech stocks have performed well because many workers are more dependent on computer technology.

The aforementioned Vanguard Total Market ETF has many diversified holdings and would be best for long-term investment. Even though the fund is currently struggling, it could rebound in the long run. Because it tracks the S&P 500, when the Dow rises again, the Vanguard Total Market ETF will rise as well. 

Because of the growth in medical and biotech ETF’s, long-term investment in SPDR S &P Biotech ETF would be another great choice for long-term investment. Gilead could be a long-term choice because of its innovation in medicine and its potential of its COVID-19 remdesivir drug. 

Stocks and ETF’s that look to the future of technology and are on the cutting edge of medicine would be the ideal choices for long-term investors. 

Stocks vs. ETF’s: Who is the winner?

The previous analysis shows that there’s no clear winner in the stocks vs. ETF battle. Some stocks perform very well based on circumstances. Some ETF’s do better if they have holdings that have longevity with investors. Both stocks and ETF’s may have different performances based on the industries they cover. The performance may also vary based on how the stock market performs overall.

Investors must choose their own investment instrument based on the industry they want to invest in, the amount of involvement they want with their investment. Choosing stocks or ETF’s ultimately depends on how much risk they want to be exposed to in the stock market. Even the great investor Warren Buffett expressed an appreciation for ETF investing.

“If you accumulate a low-cost index fund over 10 years with fairly regular sums, I think you will probably do better than 90% of the people around you who take up investing at a similar time,” said Buffett.

Both stocks and ETF’s are great options for investors for different reasons. If investors want more autonomy with their stock picks and more interaction with picks, stocks may be the better choice.

If investors want more hands-off investment and want a fund manager to pick stocks, ETF’s may be a better option. Investors may also want to pick ETF’s if they want more diverse options to invest in as well.

Regardless of which investment option traders pick, TradingSim can help investors practice trading stocks and ETF’s. Investors can test the stocks vs. ETF comparison on TradingSim to make the best long-term investment choice for them.