Is Buying a Single Index ETF Smarter Than Picking Individual Stocks?
Key Points
For many investors, buying a basic ETF such as the Vanguard S&P 500 ETF is a better bet than picking single stocks.
Even Warren Buffett believes this is so.
A lot of professional investors struggle to beat their benchmarks.
- 10 stocks we like better than Vanguard S&P 500 ETF ›
When introduced to investing, many market participants learn about the benefits of owning individual equities. And market history is littered with examples of "story stocks" that minted fortunes for select investors who likely just got lucky.
But for most investors, the better course of action is to learn how to invest in index funds or exchange-traded funds (ETFs) that track broad market indexes. Familiar examples include the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard Total Stock Market ETF (NYSEMKT: VTI).
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For many investors, ETFs and index funds make more sense than single stocks. Image source: Getty Images.
While owning an asset such as the VOO ETF or a total market fund isn't glamorous or as potentially rewarding as owning a single stock, it's a sound idea for investors seeking broad-based exposure while eliminating the burden of picking winners.
Put simply, stock picking is difficult, and the data confirm as much. In 2025, the Vanguard S&P 500 ETF gained 17.8%, while 79% of U.S. large-cap active managers underperformed the S&P 500. Not only was that worse than the 65% that lagged the index in 2024, but last year was also the fourth-worst for active managers lagging the S&P 500 since S&P Dow Jones Indices started keeping track in 2002.
In plain English, even the pros, who have resources at their disposal that "home gamers" do not have access to, get it wrong, and that happens quite frequently. So perhaps there's something to be said for "VOO and chill" as is so often said on Reddit.
For investors on the fence about owning a basic ETF, such as the Vanguard S&P 500 ETF or the Vanguard Total Stock Market ETF, Warren Buffett's views on the matter are worth noting. Perhaps the greatest money manager of all time, Buffett once said that ordinary investors can beat the pros by embracing index funds and periodically adding capital to their stakes. He also said cost-effective index funds are "the most sensible equity investment for the great majority of investors." That's convincing advice.
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Todd Shriber has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
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