Are ETFs safer than stocks?

Updated May 08 2022

Are ETFs safer than stocks?

Depending on the variety of their composition, ETFs tend to be a more diversified financial instrument when compared to a single stock which in turn makes them a less risky investment thanks to the benefits of diversification.

All financial investments carry risks but the main strategy that seasoned investors use to reduce those risks is diversification.

To show you a great example of how ETFs reduce risks, let’s take a look at one perfect example: XLI.

The XLI Industrial Select Sector SPDR Fund (XLI) is an ETF that gives investors exposure to the U.S industrial sector. Below you’ll find a chart with its price performance since the year 1999:

XLI ETF Price Chart

According to the ETF Database, one of the components of the XLI ETF is GE (General Electric Company) with a weight of 3.89%.

Now let’s take a look at GE’s (General Electric Company) price performance over the last two decades:

General Electric stock price chart

What do you see?

Clearly, GE is not enjoying the ride. Their stock price keeps dropping since the year 2000 and it was such a horrible ride that they decided to perform a 1-for-8 reverse stock split on July 30, 2021 in order to make their stock look better.

This example has made it as clear as possible.

The real power behind ETFs is diversification, which in the end means reducing exposure towards single assets and spreading it out across several different ones thus ensuring that not all eggs are in one basket.

ETFs give investors the opportunity to expose themselves to a basket of currencies, stocks from a particular industry, commodities, etc. Their nature as a highly configurable financial instrument makes them an amazing choice for investors looking to diversify their portfolios.

Featured Brokers for Beginners

BrokerTop Features
Visit

70.70% of retail CFD accounts lose money.

  • Customisable or removable leverage
  • Broad asset offering (10,000 +)
  • Competitive forex commissions
Visit

74-89% of retail CFD accounts lose money.

  • Well regulated on several jurisdictions
  • Low latency, fast execution under 30ms
  • Competitive spreads and low commissions from 0.0 pips on their Razor account
Visit

68% of retail CFD accounts lose money.

  • Social and Copy trading capabilities
  • Trading real shares and cryptocurrencies
Visit

63.2% of retail CFD accounts lose money.

  • Extensive asset offering (more than 10,000+ products)
  • Real stocks are offered along with CFDs
  • Very competitive share trading commissions when compared to similar brokers
Visit

75.26% of retail CFD accounts lose money. Trading on margin is high risk and is not suitable for everyone.

  • Beginner friendly platforms
  • Customisable or removable leverage (Not available in Australia)
  • Integration with TradingView

Author

Stefano Treviso

Featured Brokers

1

FP Markets

70.70% of retail CFD accounts lose money.

2

Pepperstone

74-89% of retail CFD accounts lose money.

3

eToro

68% of retail CFD accounts lose money.

4

SquaredFinancial

63.2% of retail CFD accounts lose money.

5

Capital.com

75.26% of retail CFD accounts lose money. Trading on margin is high risk and is not suitable for everyone.

Spread the love by sharing our content!

By using TheTradingBible.com's website you agree to the use of cookies.

Start Trading

74-89% of retail CFD accounts lose money.