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How to invest

Choosing between funds and individual securities

Start by diversifying your portfolio with ETFs or mutual funds. If you want, you can also fill out your portfolio using individual securities.
4 minute read

Points to know

  • Investing in ETFs or mutual funds can be less risky than investing in individual securities.
  • You can complement the ETFs or mutual funds in your portfolio with specific stocks and bonds.

Funds or individual securities: Why does it matter?

Choosing specific stocks and bonds can be the most intimidating part of investing. How do you find the most promising investments? What if you're wrong—will you lose everything?

Fortunately, there's a solution to this problem: Buy ETFs (exchange-traded funds) or mutual funds instead.

Both kinds of funds:
 

  • Hold hundreds or thousands of stocks, bonds, or both, so you don't have to bet everything on one company.
  • Allow you to build a diversified portfolio even if you don't have hundreds of thousands of dollars to invest.

 

How do ETFs and mutual funds work?

ETFs and mutual funds are very similar, but they trade differently. Both types of funds either buy all the stocks or bonds in a specific index (or at least a representative sample) or are run by professional managers who actively choose which stocks or bonds to buy based on research.

Learn more about index vs. actively managed funds

Either way, buying shares of a fund is a way to indirectly own the stocks or bonds owned by the fund.

For example, if you wanted to own stock in a company like Apple, you could buy Apple stock directly. Or you could buy an ETF or a mutual fund that owns Apple stock along with hundreds of other companies too.

Choosing your ETFs or mutual funds

No matter how involved you want to be in managing your portfolio, what segment of the market you want to invest in, or what type of investment strategy you want to follow, there are funds for you. Here's how to decide what to buy.

See how to decide on the mutual funds or ETFs you want

Adding individual securities

While we believe that most investors are best-served by taking advantage of the diversification offered by ETFs and mutual funds, there could be a place for individual stocks and bonds in your portfolio as well.

WATCH AND LEARN

Why invest in bonds through a fund? See how bond funds can offer benefits that go beyond diversification: the ability to get the best prices and better liquidity.

Individual bonds vs. bond funds Stream video and transcript

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For more information about Vanguard ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for limits. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.