Why Investing in US Stock ETFs Is Smarter Than Picking Individual Stocks

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For the vast majority of non-professional investors, investing in US stock ETFs is a smarter and more reliable strategy than painstakingly selecting individual stocks. You can think of investing as a long journey: choosing to drive on a flat, wide highway or carving out a thorny path yourself? Investing in ETFs is like choosing the former, making your wealth journey smoother.

A Simple Fact: According to OneDigital data, over the 20 years up to 2015, the S&P 500’s average return was 8.2%, while the average investor’s return was only 2.1%. This is usually because investors try to time the market or panic sell during downturns.

Investing in ETFs systematically solves the challenges of individual stock selection. It has three core advantages:

• Automatic Risk Diversification: You no longer need to worry about bad news from a single company, such as sudden US financial news.
• Easily Capture Market Returns: You can effortlessly share in the growth dividends of the entire market.
• Low Costs: Extremely low management fees lead to higher long-term returns.

Key Points

• Investing in US stock ETFs is smarter than selecting stocks yourself—it makes your wealth growth smoother.
• Selecting stocks is hard to succeed because most stocks perform poorly, with only a few making big gains.
• Investing in ETFs automatically diversifies risks, allowing you to easily obtain average market returns with very low fees.
• Selecting stocks yourself is easily affected by bad news and psychological biases, reducing your returns.
• ETFs are like a basket full of stocks, helping you avoid risks and grow with the US economy.

Picking Individual Stocks: High-Risk Challenge

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Choosing to carve your own path, that is, picking individual stocks, sounds full of personality and opportunities. You may dream of selecting the next Apple or Amazon, achieving explosive wealth growth. However, real data and investment psychology tell us that this path is not only rugged but full of obstacles ordinary investors can hardly overcome.

Extremely Low Probability of Beating the Market

You might think that with hard research, you can always find “bull stocks” that outperform the market. But academic research reveals a cruel truth: this is almost an impossible task. Arizona State University professor Hendrik Bessembinder’s research completely overturned people’s perceptions.

His research found that from 1926 to 2019, nearly $47.4 trillion in net wealth created by the US stock market was contributed by a very small number of “superstar stocks.”

• Extreme Concentration of Wealth Creation: The best-performing 2.4% of companies contributed all net wealth growth.
• Most Stocks Underperform: Over half (55.2%) of US individual stocks had lifetime returns worse than risk-free short-term US Treasury bills.

This means if you randomly pick stocks, you have over a 50% chance of selecting one that fails to beat even the most basic risk-free return. The probability of picking those rare “superstar stocks” is minuscule.

The chart and data below make this challenge clearer:

Picking individual stocks is like finding a needle in a haystack. You not only have to avoid tens of thousands of mediocre stocks but also precisely capture less than 4% of “wealth creators.” For individual investors without professional teams and massive data support, this is undoubtedly a gamble with extremely low odds.

Individual Stock Risks: Vulnerable to US Financial News Shocks

When you concentrate funds in a few stocks, you fully expose yourself to what is called “unsystematic risk.”

What is “Unsystematic Risk”? This risk, also called “diversifiable risk,” refers specifically to risks unique to a company or industry. It originates from internal company factors, such as management decision errors, major product defects, financial fraud scandals, or sudden industry regulatory policies. This risk is unrelated to overall market ups and downs but can be devastating for you holding that company’s stock.

This risk is often triggered by sudden US financial news. For example, a negative report on a company’s CEO health or earnings far below expectations can cause the stock price to plummet in hours. Recently, some tech stocks experienced sharp pullbacks due to concerns over AI overvaluation and profit-taking in US financial news. If you unfortunately “step on a landmine,” your portfolio could suffer heavy damage, with years of gains wiped out. Your invested time and effort could go down the drain due to an unexpected piece of US financial news.

Hard-to-Overcome Human Behavioral Biases

Even if you avoid companies with poor fundamentals, the biggest enemy on the investment path is often yourself. Humans often suffer from irrational psychological biases when making decisions—these biases severely damage your long-term returns.

1. Familiarity Bias You tend to invest in companies you are familiar with, such as products you use daily or well-known enterprises in your country. This makes your portfolio overly concentrated, missing global growth opportunities. Research shows that a fully diversified portfolio significantly outperforms highly concentrated ones long-term. Simply abandoning diversification due to “familiarity” may cost you over 2% in potential annual returns.

2. Disposition Effect This is a famous bias proposed by behavioral finance professors Hersh Shefrin and Meir Statman. It describes a harmful tendency: you prematurely sell rising “winning stocks” to lock in profits but tightly hold falling “losing stocks,” unwilling to admit failure and hoping they “will rise back someday.” The cost of this behavior is huge. Research finds the disposition effect can cost ordinary investors up to 3.2% to 5.7% in annual returns. You sell “thoroughbreds” that could continue growing but lock valuable funds in underperforming assets.

3. Chasing Trends Media is full of various US financial news reporting which sectors are hottest and which stocks are surging. This easily tempts you to chase these “star stocks,” fearing missing out. JPMorgan Chase Institute report points out many retail investors enter hot assets (like cryptocurrencies) at price highs, only to suffer losses when prices fall back. This behavior essentially buys at overhigh prices while ignoring whether fundamentals support such valuations.

These deeply rooted human behavioral biases make the path of individual stock selection difficult. You not only battle the market but also your own human weaknesses.

Investing in ETFs: A Steady and Wise Choice

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If you have recognized that picking individual stocks is like carving a thorny path, then investing in ETFs is choosing to drive on a flat, wide wealth highway. Through systematic design, it solves several biggest headaches for individual investors, making investing steady and wise.

Core Advantage: Built-In Risk Diversification Mechanism

The biggest fear of investing in individual stocks is “stepping on a landmine”—your carefully selected company may plummet due to unexpected US financial news or poor operations. The core advantage of ETFs is its built-in “automatic lightning protection” mechanism.

A Vivid Metaphor: Buying one ETF is like buying a pre-packaged “stock basket.” You no longer put all eggs in one basket but own hundreds or even thousands at once.

This design protects your assets through inherent diversification. When a company in this “stock basket” unfortunately goes bankrupt, its loss is only a tiny part of your total investment. The continued performance of hundreds of other companies in the ETF will easily offset this negative impact.

Let’s look at some specific examples:

• Broad Representation (SPY): When you buy one share of an ETF tracking the S&P 500, such as SPDR S&P 500 ETF (SPY), you instantly own shares in about 503 top U.S. listed companies.
• Sector Focus (QQQ): You might think Invesco QQQ Trust (QQQ) is just a tech fund, but it actually covers multiple sectors. As of September 2025, tech stocks account for about 62.34% of its weight, but it completely excludes financial sector stocks. This allows you to focus on high-growth sectors while achieving sector-level diversification.
• Ultimate Diversification (VTI): If you want to maximize risk dispersion, Vanguard Total Stock Market ETF (VTI) is an excellent choice. It includes nearly 4,000 U.S. stocks, covering all sectors like tech, finance, healthcare, letting you truly invest in the pulse of the entire U.S. economy.

By holding such a basket of stocks, you effectively minimize individual stocks’ “unsystematic risk.” You no longer need to lose sleep over a company’s earnings or sudden news.

Easily Capture Average Market Returns

Another huge challenge of picking individual stocks is needing to consistently beat the market—historical data shows this is extremely difficult. So why not directly own the market?

Investing in broad-based index ETFs (like VOO tracking S&P 500 or VTI tracking the total market) is essentially investing in the long-term growth of the entire U.S. economy. You no longer need to anxiously guess which stock will be the next “superstar” but effortlessly obtain long-term returns synchronized with the market.

Facts speak louder than words. SPIVA reports show:

Over the past 15 years, over 80% of actively managed funds underperformed their benchmark indices (like S&P 500). In some categories, this proportion exceeds 90%.

More specific data reveals astonishing gaps: over the past decade, the S&P 500’s total return reached 327.8%, while the average U.S. active fund return was only 200.5%. This means simply holding index ETFs may far outperform professional fund managers trying to “beat the market.” You say goodbye to stock selection anxiety yet achieve superior long-term results.

Significant Cost Advantages and Transparency

In the investment marathon, costs are key to determining how much return you ultimately get. ETFs have unparalleled advantages here.

1. Extremely Low Management Fees Active funds usually charge high management fees, acting like a “speed bump” constantly eroding your long-term compound interest. In contrast, many mainstream ETFs have astonishingly low fee rates, usually far below 0.3%, with some core index ETFs (like VOO) as low as 0.03%. These saved fees create huge compound interest effects in your portfolio over time.

Many modern investment platforms, such as Biyapay, not only allow convenient investment in these low-cost ETFs but their clear and transparent fee structures also help you better plan investments, maximizing final returns.

2. High Holding Transparency Unlike many active funds disclosing holdings only quarterly, ETFs usually publish all held assets daily. This means you always clearly know where your money is invested, able to understand your portfolio composition based on latest market dynamics and US financial news.
3. Superior Tax Efficiency This is an often overlooked but extremely important advantage of ETFs. Due to its unique “in-kind creation/redemption” mechanism, ETFs are much more tax-efficient than mutual funds.

Simply put, when investing in ETFs, you basically only consider taxes when you sell and profit. You won’t “passively” incur tax burdens due to fund managers or other investors’ operations. This tax advantage further enhances your long-term net returns.

The investment path is clear: picking individual stocks is like finding a needle in a haystack, full of uncertainty. Investing in broad-based index ETFs is growing with the U.S. economy—the best way to share era dividends. ETFs comprehensively outperform individual stock selection in risk control, return stability, and cost-effectiveness.

Action Suggestion: Build Your Investment Foundation You can focus asset allocation on low-cost broad-based index ETFs (like VOO, VTI). For interested investors, adopt a “core-satellite” strategy:

• Core Position (70%-90%): Invest in broad-based index ETFs as wealth foundation.
• Satellite Position (10%-30%): Use for small attempts at individual stock investments.

FAQ

How should I start investing in US stock ETFs?

You need to first open a securities account supporting US stock trading. Then, deposit funds via bank transfer or other methods. Finally, search for your desired ETF code (like VOO or VTI) in trading software, enter the quantity to buy, and place the order.

Are all ETFs the same?

No, ETFs vary widely. Broad-based index ETFs (like VTI) track the entire market with highest risk diversification. There are also sector ETFs (tracking specific industries), theme ETFs (tracking concepts like AI), etc. For beginners, broad-based index ETFs are usually ideal for building portfolio cores.

Can I still invest in individual stocks?

Of course. You can adopt a “core-satellite” strategy. Allocate most funds (like 90%) to stable broad-based ETFs as the “core” position. Then use a small amount (like 10%) to invest in stocks you favor as “satellite” positions, satisfying your stock-picking interest.

What if the entire US market falls?

Overall market downturns are systematic risks that cannot be completely avoided through diversification. But history shows markets always recover and hit new highs after falls. Long-term holding and regular fixed investments are effective strategies to cope with fluctuations. You are investing in the long-term growth potential of the U.S. economy.