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When Do Single Stocks Trump ETFs?

DATE POSTED:September 24, 2020

The benefits of ETF (exchange-traded fund) investing are well substantiated and generally well understood: The average investor benefits tremendously from low fees, diversification, and convenience. However, it's also valuable to know the benefits of single-stock investing, and the relative advantages of owning a share of stock directly versus owning a basket of stocks through a pooled vehicle. In this article, you'll gain an understanding of why, under the right circumstances, it may be beneficial to own single stocks. 

By owning stocks directly, you will be exposed to the complete performance of a particular company. For each stock you own, you'll have gains or losses.

In the case of significant stock price gains over time, you will be left with sizable long-term capital gains, which are taxable when you sell if you invest in a regular taxable brokerage account. If you decide to own single stocks, you can engage in a practice called "tax loss harvesting," or using capital losses from losing stock positions to offset gains from winning ones. By reducing capital gains through loss harvesting, you'll have the opportunity to lower your tax bill.

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