Why invest in ETFS, not stock picks, is popular now
After the record – setting 2024 records, exchange-traded funds, or etfs, there is another year.
Investors continue to squeeze money into financial products at an unprecedented rate. More than 4,300 are located in the US – ie and Record – There are more ETFs now on the market than stocks of publicly traded companies. They run the gamut, too, from some ETFs in ETFs and specialty ETFs to others that offer embedded positions in individual stocks known for their volatility, such as Nvidia and Palantir.
Whether you’re already invested in ETFs or considering doing so, you may be wondering: What makes ETFs so popular? And does this mean that the season of individual stock picks is coming?
“I would argue that it’s been that way for a while,” said Callie Cox, Chief Stock Market Strategist at Ritholz Wealce Management. “ETFS have proven a superior structure for gaining market exposure.”
Investors welcome low costs and broad exposure
Another reason these funds have exploded in popularity, according to Cox, is that they offer an excellent combination of exposure and long-term compounding.
He says: “They are very popular. “And [ETFs’] The increasing development and awareness of how the market works has led many people to adopt it as part of their basic investment strategy. “
The average expense ratio for ETFs is 0.9%, according to the federal government. But for easily managed index funds, that number is much lower. The Vanguard S&P 500 ETF, for example, charges an average expense ratio of 0.03%. Low-cost ETFs continue to attract record expansion, while high-cost ETFs saw net outflows of $341 billion from January to November last year.
Of course, the popularity of ETFs doesn’t mean that everyday investors don’t hold stocks at all. COX notes that it has many clients, friends and family who invest in ETFS – and have a “play account” on the side of each lot.
However, he says retail investors need to accept their limitations when it comes to finding individual stocks that can beat the market – a task that research continues to show is almost certainly effective.
“The average American investor just wants to build a nice nest egg or save enough for retirement,” Cox said. “They’ve learned enough to take a step back and say, ‘Okay, what do I really want here?’ And often the answer to that is stable, consistent returns over many years by letting compounding do the work for them with a long etf. “
Meanwhile, individual stock selection has become more challenging as prices remain at historic highs and major indexes continue to set all-time highs. Much of that has to do with the few companies outside of the spectacular cycle that have the most impact on the growth of the S & P 500, making the stock’s value difficult to pinpoint. COX points to data that suggests only about one-half of the shares in the stock have moved past the market in the past few years.
Instead of focusing on individual ratios, most investors are better off investing in ETFs that offer the total return of the index.
The case is in the case: the IS & P 500 could be on its way to 7,000 by the end of the year, so index funds reflecting its structure are enjoying big gains. For example, it is up 38% since April.
“The [market’s] Momentum continues to favor ETFs,” Todd Rosenbluth, head of research at Vettafi, told Investor’s Business Every Day. “Flows to ETFS are likely to be even stronger in 2026.”
ETFs make asset diversification easy
According to the federal government, 45% of US individuals who work for American investors now hold ETFs in their portfolios. That flexibility allowed investors to use ETFS to bridge the gap between equity markets and other markets, such as commodities and crypto.
“Without a strong stock market in 2025, ETF investors have been divided into non-equity styles,” Rosenbluth said. “Gold, Bitcoin and fixed income ETFS have been in demand as they offer diversification benefits.”
These niche offerings also helped TFS achieve record leads. Special products – including the execution of Bitcoin and ETRERUM Spot ETFS – Continue to see some of the greatest growth.
“Bigger Bargers don’t offer crypto assets anymore. So they offer Crypto ETFs because the ETF Wrapper makes it easy to do Operations and Follow the vision,” said Cox.
The availability of Crypto Spot ETFS does not mean that investors should hold stocks without a working understanding of the Digital Asset Vandscape. But since their debut in 2024, they have lowered the barriers to entry into the crypto market for investors who are more familiar with the local space.
“It’s made a lot of investors more comfortable with dipping their toes into crypto, which I don’t really think is a bad thing,” he said. “Crypto ETFS is really changing the game in that way.”
ETFS also provide active exposure to other asset classes, such as precious metals, where ownership means holding shares rather than physical bonds.
This year, gold and silver have outperformed the stock market, placing in all-time highs amid a weakening dollar, inflation and geopolitical damage. Subsequently, ETFs holding those underlyings have seen huge gains. The SPRD Gold Trust is up more than 48% by 2025, while the Ihares Silver Trust is up around 59%.
Aside from crypto, commodities and other niche etfs that can provide diversification, it is important to understand their additional uses. While the growing AI bubble could have investors regaining their exposure to tech stocks, Cox cautions against getting out of one corner of the market instead of ETFs.
““Diversity works best by adding, not subtracting,” he said. Something always works in the markets – something always grows. ”
For everyday investors, ETFs seem like the best way to embrace that growth.
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