Shares or ETFs: what will be the better choice in 2025?

Inflation, high prices and the uncertainty of state pensions: more and more investors are looking for alternatives to conventional investment products such as savings accounts or building society savings contracts in order to get more out of their money. Investing in shares or ETFs is considered a high-yield alternative. But what exactly are the differences between the two asset classes? In this article, you will learn what exactly individual shares and ETFs are and which investment is better suited to you and your financial goals!

Shares or ETFs: Definition & Explanation

Before we look at the exact differences between individual stocks and exchange-traded funds and which type of investment is better suited for you, let

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What are shares?

It is a security issued by a so-called AG or joint-stock company. If you buy such a security, you become a co-owner of the respective company and acquire rights. As a shareholder, you have the right to participate in the Annual General Meeting, where the company’s policy is determined. You also have the right to vote.

Major shareholders own the majority of the company and have the greatest influence through more voting rights. Small shareholders primarily use individual shares as an investment with the aim of making a profit. As an investor, you can make money from shares by trying to find undervalued companies in order to profit from the sale and performance.

A dividend strategy is another way to profit from shares. A lot of research and effort goes into finding top dividend shares. When companies make a profit, they can pay a portion of it to their shareholders. These distributions are called dividends, with the Annual General Meeting deciding on the amount to be paid out.

There are three main types of shares, each with different advantages and disadvantages:

• Preferred shares: As the holder of a preferred share, you receive certain privileges, such as an increased dividend. This advantage is offset by the fact that you do not have the right to vote at the group’s Annual General Meeting.
• Registered shares: There is a so-called share register in which it is recorded who owns how many shares in the company. Registered shareholders can participate in the Annual General Meeting and have voting rights, for example to vote on whether dividends should be paid. Normally, your bank will automatically transfer your name to the register.
• Bearer shares: With this type of security, there is no register for the individual shares. The right to vote passes to the

The most relevant factor when buying this security is the share price. It describes the price at which an individual share is transferred from one owner to another. The share price is determined by supply and demand, which is why price fluctuations are commonplace. If there are more interested parties than purchasable individual shares, demand increases and with it the value of the security.

What are ETFs?

Exchange Traded Funds are funds into which many investors jointly contribute. These funds then invest in a specific asset class such as shares, real estate, precious metals or bonds. The fund contains a large number of securities and attempts to replicate a specific index as closely as possible.

A special feature of exchange-traded funds is that you can invest in entire markets with just one security. The broad diversification of this asset class is called diversification and offers the advantage of spreading risk. Poorly performing shares in some companies can be offset by the shares in others that are doing better. For investors who ensure they have sufficient diversification, ETFs are possibly the best risk-free investment.

The ETF is particularly suitable for long-term goals, since the optimal investment horizon is at least 10 to 15 years. This way, risks can be well balanced. Possible goals are your own retirement provision or financial security for your family.

With a long investment horizon, you also benefit from the compound interest effect. You can reinvest the returns that you have already invested. In this way, the amount with which you can generate returns in the future has increased. Your capital grows more and more.

Shares vs ETF? The difference

You may be reorganising your finances and asking yourself ‘what to invest in?’: Shares or ETFs? Both asset classes are considered to be high-yielding and are interesting alternatives to traditional investment types that used to promise good interest rates but can no longer compensate for inflation. Below we take a closer look at the direct differences to find out which investment is better suited to your individual goals.

Which investment achieves the better return?

The aim of a passive fund is not to achieve a higher return and beat the market. Instead, the fund aims to achieve the return of the respective index and thus generate the average return of the respective market.

Thematic ETFs are a special form that invest in certain innovative industries. This area of exchange-traded funds involves a higher risk but can yield more returns. One example of a high-yield ETF is a hydrogen ETF.

Individual investors who invest in individual stocks aim to achieve particularly high returns. Investors try to find undervalued securities with the aim of profiting from the performance when they sell. In addition, the prices of individual stocks fluctuate more. Favorable entry and exit times can be used to generate profits.

In summary, the comparison shows that, in theory, there is a greater chance of achieving very high returns with individual stocks. However, this only applies to those investors who can recognize and take advantage of the best opportunities and who have extensive knowledge and experience in this area. The success of individual stocks is largely dependent on the investor.

Exchange Traded Funds tend to score more highly in terms of consistency and depend on current market developments and external factors such as political decisions or crises. Themes ETFs, which can increase the potential for returns, are riskier and less diversified than global world ETFs.

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Shares or ETFs: which investment offers more security?

The concept of exchange-traded funds is designed to capitalize on the profitability of shares but with lower risk. Individual shares are considered to be significantly riskier than investing in an ETF.

Due to the high risk diversification of ETFs, it is possible to offset losses from some companies with other companies included. This distribution of risk makes exchange-traded funds a comparatively safe investment if investors pay attention to sufficient diversification.

In addition, exchange-traded funds are segregated as special assets. This means that the assets of the fund investors are kept separate from the assets of your broker or bank. In the event of insolvency, your invested assets are protected and will be refunded to you.

The security risk of shares is higher and lies within the responsibility of the investor. Fluctuations in a portfolio of individual shares are stronger and more significant. A total loss of the invested capital of certain companies is possible, while a total loss of the invested money in ETFs is almost impossible.

If you are interested in investing in individual stocks, make sure you diversify sufficiently. Your portfolio should include a wide range of companies from different countries and industries to avoid cluster risks.

The investment horizon

Exchange Traded Funds are an asset class with a long-term investment horizon. This protects against losses and ensures that possible fluctuations can be well balanced. In addition, as an investor, you can increasingly benefit from compound interest if you have invested your money over many years.

Among the investors who invest in individual stocks, both types of investor can be found: short-term speculators who take advantage of small price changes and long-term investors who want to profit from the positive development of certain companies that they hold for years.

expenditure

One of the biggest differences between the two asset classes is the amount of effort involved. Trading in individual stocks can be very costly. Each investor is responsible for the exact composition of their portfolio. To find the companies with the best growth opportunities, shareholders need in-depth knowledge and experience.

Value investing is about finding out which companies are undervalued and have a good chance of positive development. In this way, investors can benefit from higher sales prices. This requires precise knowledge of the company, including numerous key economic figures.

Even investors who prefer short-term trading and are interested in trading and speculation put in a great deal of effort: in order to profit from short-term fluctuations, it is necessary to stay up to date, to regularly inform yourself and to keep an eye on prices. Investing in individual stocks is therefore time-consuming and laborious.

If you want to invest in exchange-traded funds, the effort involved is significantly lower and is better suited for beginners. It is important to understand how an ETF works and is structured. It is enough to read up on it carefully once and to familiarize yourself with the possible risks and how to deal with them.

Right of investors to have a say

As mentioned above, most shareholders of individual stocks have voting rights at the respective company’s annual general meeting. Investors in exchange-traded funds do not have voting rights. This voting right is not purchased when you buy an exchange-traded fund, but it falls to your provider.

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Conclusion: Personal financial goals as a factor in deciding between shares or ETFs

Shares and ETFs are high-yield investments. Both offer an interesting opportunity to combat inflation and make more of your assets. However, they have different advantages and disadvantages and are suitable for different types of investors.

If you are looking to achieve an above-average return and are willing to invest a lot of time learning about specific companies, staying up to date and learning strategies, single stocks could be an interesting option for you. Basically, you should be aware that the risks and personal responsibility are higher. You need to invest a lot of time and effort, for which you can be rewarded with high returns.

On the other hand, if you are looking for a simple, cost-effective way to invest and generate returns with little effort, investing in an ETF could be a good option for you. It is an investment with a long-term investment horizon, with which you will not achieve excess returns, but you will be rewarded with increased security and the average market return. Find out more about Exchange Traded Funds or “Index Funds vs ETFs” here!

FAQ – Frequently asked questions about shares or ETFs