Europe has been experiencing a lot of change lately, so you may question whether stocks or ETFs would be a better option for potential investors. Choosing between the two options can be tough, but here is a breakdown that may help you decide.
Trading Options
Stocks are an excellent choice for someone looking to invest during certain hours. The European and UK market have certain operating hours that allow shareholders a break, but this doesn’t mean their stocks stop performing while it's closed. Social and political events can affect stocks, causing them to decline in price. Unfortunately, an investor can only sell their stock when the market opens, but this can be too late.
ETFs trade all day, giving shareholders the chance to buy and sell at their pace. ETFs are usually long-term investments, but if a stock is performing badly and decreasing the value of an ETF drastically, it can be sold immediately.
Risk Level
The risk level for stocks and ETFs are extremely different. Investing in a stock puts all of your investments in the hope that it will perform well. If something happens and the stock plummets, all of your investments are lost with it. There is a chance that it will increase in value, and you can earn a profit.
ETFs are much less risky for a potential investor considering it’s a collection of assets. If one stock drops in value, it may not affect the ETF as a whole. If it does, it’ll be a fraction compared to those invested in the stock on its own. The risk of loss is much lower, but this means that the chance of gain is also less.
Currency Risk and Brexit
With current events, it’s impossible to talk about the stock market without mentioning the currency risk due to Brexit. After the separation from the European Union, the price of Britain’s pound fell to a record low. British currency fell below a 31-year low against the dollar at $1.3224. This is a prime example of currency risk of investing overseas. Due to political changes, the currency was impacted and fell in value, which would cause stocks and ETFs to fall in value.
The Euro also saw a decline, but it was much less shocking when compared to the British Pound. What does this mean for stocks and ETFs? Well, if stocks were in British Sterling, you would have seen massive losses. However, ETFs spread across Europe would have less of an impact. Additionally, there are reports that the Euro is rebounding faster than Pound Sterling.
