My situation: I am mostly interested in long-term dividend-paying investments. My philosophy is "only sell if the company becomes fundamentally worse", so I only pick stocks of companies I feel comfortable being an owner of.
The consensus seems to be that for long-term investments, ETF trackers are better than individual stocks mainly for the following reasons:
- "You can't beat the market";
- Easier and cheaper to invest in foreign countries or specific sectors;
- Lower risk;
- Historically better than individual stock investments.
However, I am not fully convinced by ETF Trackers in the current context, for various reasons:
Reading things like "buy ETFs and earn money easily and passively" or "people are buying ETFs more than ever", make me worried. If I start reading that "ETFs are the new paradigm", I'll think that a market crash is imminent.
Why not make my own portfolio? I could simply look at the stock ratios of the major ETF trackers and buy stocks with similar ratios. [Note that this is assuming that there are no significant fees for doing that, so that would mean European stocks for me].
I like to be able to reinvest the dividends as soon as I get them.
I have the liberty to buy / sell any stock.
Finally, it just seems too easy. If "everyone" starts thinking that with ETFs they are going to be rich, things will go wrong sooner or later.
So, are ETF trackers fundamentally better than individual stocks? Am I missing something important here? Or is my gut feeling just wrong?
Note that there is always the possibility of having both stocks and ETFs, but this would be pointless if ETFs are fundamentally better.
Edit: Many insightful answers! Thank you! I will also consider non dividend-paying stocks, altough my goal long-term is to earn enough through dividends that I don't even need to work. My plan is for now to put every month 500€ ~ 1000€ into a couple companies I believe in.
Regarding taxes, I am using a PEA in France, which is an account capped at 150k€ with overall gains taxed at 17.2% after 5 years - so dividend taxes are a non-issue short-term.
Regarding fees, I pay ~0.7% when buying and ~0.4% when selling for stocks on Euronext; fees are much higher (>30€) for other stocks, so owning anything outside Euronext will likely be through ETFs. How high/low are these fees compared to what you use?
Edit 2: I found various reasons why one may prefer individual stocks rather than ETFs:
To have voting rights, which may or may not be important to you. As a sidenote, using ETFs mean transferring an absurd amount of voting power to institutes like Blackrock, which is a huge problem in itself.
To attend shareholder's meetings, which may or may not be important to you.
In some banks, there is the "Avance sur Titres" or "Lombard credit", that may exclude ETFs as collaterals. A surprisingly accessible example is Boursorama that lets you borrow money for half the value of your stock account, as long as you borrow >= 10k€.
Tax optimization, by selling stocks that are underwater.
In France (not sure elsewhere):
"Shareholder's clubs", which give different kinds of goodies, as discounts, tickets to expositions/concerts or the company's factories. Ex: LVMH, Orange.
"Fidelity bonuses", which give additional voting rights and/or a bonus dividend. Ex: Air Liquide.
And some personal reasons:
A sense of property by owning the stock directly. If I believe in a company, I may want to re-invest and/or 'buy the dip'. This is not possible if I only have ETFs.
Stock picking is fun.
--> Long story short, I get various bonuses for having individual stocks, so I'll keep more or less matching the composition of huge ETFs, while picking more stocks from companies I like or that give nice bonuses.