Key Takeaways
- 1ETFs provide instant diversification; individual stocks offer precision targeting
- 2Most investors benefit from a combination of both approaches
- 3ETFs are better for broad market exposure; individual stocks for factor tilts
- 4Our factor model helps individual stock selectors make better decisions
#ETFs: The Case for Simplicity
Exchange-Traded Funds (ETFs) hold baskets of securities that you can buy with a single transaction.
Advantages
| Benefit | Why It Matters |
|---|---|
| Instant diversification | One purchase gives you 500+ stocks |
| Low cost | Expense ratios as low as 0.03% |
| Tax efficiency | Lower capital gains distributions |
| Simplicity | No individual stock analysis needed |
| Broad exposure | Access entire markets, sectors, or themes |
Disadvantages
- Cannot avoid overvalued individual stocks within the index
- Includes both excellent and poor companies
- No ability to customize based on factor preferences
- Index composition changes may not align with your strategy
#Individual Stocks: The Case for Precision
Owning individual stocks lets you build a portfolio tailored to specific factor characteristics.
Advantages
| Benefit | Why It Matters |
|---|---|
| Factor targeting | Focus on highest-quality, best-value stocks |
| No embedded fees | No ongoing expense ratios |
| Tax-loss harvesting | Selectively sell losing positions |
| Conviction sizing | Overweight your best ideas |
| Direct ownership | Voting rights, direct dividends |
Disadvantages
- Requires research and monitoring
- Higher concentration risk
- More complex tax reporting
- Emotional decision-making risk
#The Hybrid Approach
Most sophisticated investors combine both:
Core (60-70%): Index ETFs Broad market exposure through low-cost ETFs provides the portfolio foundation.
Satellite (30-40%): Individual Stocks Factor-selected individual stocks provide the alpha potential.
This approach captures market returns through ETFs while using our rankings to identify high-quality individual stocks that may outperform.
Last updated: February 10, 2026