I Know How to Hand-Pick Stocks. Here's Why I Still Like ETFs

When I first started buying stocks in my brokerage account, I was admittedly quite nervous about it. Back then, I didn't know as much as I do now about investing. And even though I was willing to put in a lot of research, I was afraid of making a bad call.

Now, years later, I can say that although I did make my share of bad calls, I'm generally happy with my portfolio, and that I'm way more comfortable with the idea of choosing stocks individually. I know what financial details to focus on when choosing stocks, and I also know not to get too hung up on dividends (a mistake I've fallen into in the past).

But even though I feel I'm well-equipped to hand-pick stocks for my portfolio, there are times when I'll decide to load up on shares of a broad market ETF instead. Here's why.

Sometimes it's nice to take the easy way out

When you invest in ETFs, or exchange-traded funds, you're basically putting your money into a collection of stocks rather than individual ones. If you buy shares of an energy ETF, for example, you'll effectively be investing in multiple energy stocks. If you buy shares of a healthcare ETF, similarly, you'll become the proud owner of different healthcare stocks all packaged into a single investment.

The nice thing about ETFs is that they don't tend to require nearly the same amount of research as buying individual stocks. That's because you're not analyzing companies one by one. You're simply looking at the ETF's strategy and performance, and then making the decision as to whether it should have a place in your portfolio or not.

I like the idea of broad market ETFs -- specifically, S&P 500 ETFs. The reason is that these ETFs basically give you a ton of diversification without having to do a lot of work.

In fact, over the past 50 years, the S&P 500 index has delivered an average annual return of 10% before inflation. If you were to put $2,000 into an S&P 500 ETF, sit back, and do nothing, in 50 years, you'd be sitting on about $235,000, assuming that same 10% return.

You might snag an even better return on an individual stock you hold for 50 years. And that's why I insist on owning shares of the different companies I think are winners. But I also like the idea of falling back on ETFs in case some of my picks end up being losers. It's happened before, and it could certainly happen again.

A solid investment to consider

If you're comfortable with the idea of hand-picking stocks, then you may not feel so compelled to put money into ETFs. But it never hurts to buy them in conjunction with individual stocks. And if you're not confident in your ability to choose stocks individually for your portfolio, then it definitely pays to fall back on ETFs for the peace of mind alone.