A young man is staring forward.
Understanding investment types

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.

Stock

A security that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits, some of which could be paid out as dividends.

Bond

A debt security (IOU) issued by a corporation, government, or government agency in exchange for the money the bondholder lends it. In most instances, the issuer agrees to pay back the loan by a specific date and make regular interest payments until that date.

ETF (exchange-traded fund)

An investment with characteristics of both mutual funds and individual stocks. Many ETFs track an index, a commodity, or a basket of assets. Unlike mutual funds, ETFs can be traded throughout the day. ETFs often have lower expense ratios but must be purchased and sold through a broker, which means you may incur commissions.

Mutual fund

A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.

Diversification

The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk.

Index

An unmanaged group of securities whose overall performance is used as a benchmark. An index may be broad or focus on one sector or type of security.

Share

A single unit of ownership in a mutual fund or an exchange-traded fund (ETF) or, for stocks, a corporation. 

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

Market

The trading of a universe of investments, based on factors like supply and demand. For example, the "stock market" refers to the trading of stocks.

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

Explore professional advice

We offer expert help at the low cost you'd expect from Vanguard.

Compare advice options

Start investing now

Get started

Start investing now

Get started

Saving for retirement or college?

See guidance that can help you make a plan, solidify your strategy, and choose your investments.

Start with your investing goals

Already know what you want?

From ETFs and mutual funds to stocks and bonds, find all the investments you're looking for, all in one place.

Find investment products

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 online) or through another broker (who 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.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.