What are stocks?
Put simply, stocks are securities that represent a stake in a company’s capital. They offer a way to invest in a company and benefit from its performance.
Here are the key points you should know about stocks:
Become a co-owner: When you buy a stocks, you acquire a portion of a company’s capital and become a shareholder.
Earn profits: The goal of investing in stocks is to sell them at a higher price than you paid (capital gain).
Dividends: Many companies distribute part of their profits to shareholders in the form of dividends.
Risk: The price of a stocks can also fall, especially if the company incurs losses or the market situation is negative.
Trading: You can buy and sell stocks on the stock exchange through brokers or trading apps.
Capital base: Stocks represent either a fixed nominal value or a proportion of the total capital of a company.
Want to learn more about stocks? Our in-depth articles “What are Stocks?” and “How to invest in stocks” will help you gain a full understanding of this security.
What are ETFs?
Passive ETFs (Exchange Traded Funds) are securities that replicate the performance of a specific index. They offer an easy way to invest in a wide range of securities, similar to funds, but with the added benefit that you can buy and sell them on the exchange.
Here are the key features of ETFs:
Index replication: A passive ETF tracks the performance of a specific index; you’re essentially investing, like with an investment fund, in a basket of securities such as stocks or bonds.
Diversification: With an ETF, you invest in all the securities in the index with a single purchase, spreading risk and providing diversification.
Trading: ETFs offer great flexibility, as you can buy and sell them like stocks during market hours through brokers or trading apps.
ETF savings plans: With ETF savings plans, you can invest regularly, gradually build your portfolio and benefit from the cost average effect.
Looking for more details about the benefits and how ETFs work? Check out our in-depth articles “What are ETFs”, “ETF savings plans” and “Investing in the ETFs”.
What are ETCs?
ETCs (Exchange Traded Commodities) are securities that enable you to invest in commodities without having to physically own them. The value of an ETC is based on the underlying commodity, which is tracked by the issuer, the publisher of the security.
Here’s what you should know about ETCs and commodities:
Investment in commodities: With ETCs, you can invest directly in the performance of individual commodities or baskets of commodities without having to physically own the commodity.
Variety: ETCs allow you to invest in a wide range of commodities, including energy resources, industrial metals and agricultural products.
Performance replication: An ETC often replicates the price performance of the underlying commodity on a 1:1 basis, providing direct exposure to the commodity’s performance.
Stock exchange: ETCs are traded on the stock exchange and can be bought and sold at any time.
No fixed term: Like ETFs, ETCs usually have no fixed term, offering flexible trading and high liquidity.
Debt instruments: Legally, ETCs are debt securities and not segregated assets.
Issuer risk: Investors bear the risk of the issuer, which is often mitigated by collateral such as physical commodities.
Curious to learn more? Read our article “What are commodities” to find out more about commodities as an investment.
How do stocks, ETFs and ETCs differ from derivatives?
The difference between stocks, ETFs, ETCs on the one hand, and derivatives on the other, influences your investment strategy and how you build your portfolio. Here are the key differences:
Real ownership vs synthetic exposure
Stocks, ETFs and ETCs offer you real ownership of the underlying assets.
With derivatives, you don’t own the underlying asset but speculate on its price movement.
Long-term investments vs short-term speculation
Stocks, ETFs and ETCs are geared towards long-term investment, where you benefit from growth and value appreciation.
Derivatives are often used for short-term speculation, where you bet on rapid price fluctuations.
Dividends and capital gains
With stocks and ETCs, you can benefit from dividends or the value appreciation of the underlying asset.
With derivatives, you don’t receive dividends but only speculate on price movements.
For more detailed information and a deeper comparison between stocks, ETFs and derivatives, read our guides “Stocks vs derivatives” and “Stocks vs ETFs”. These offer further insights and help you refine your investment strategy.
Why do investors choose securities like stocks, ETFs and ETCs?
Securities are well-suited for building wealth and offer many benefits. Investors often choose these investment types because they provide a long-term way to grow wealth, strengthen retirement planning and secure financial success sustainably. Additionally, they can help you hedge against inflation.
In the following sections, we’ll look at the specific advantages of each type of security and explain why stocks, ETFs and ETCs are particularly attractive options for investors.
Why invest in stocks?
Buying stocks means you become a co-owner of a company, which gives you not only the opportunity to benefit from its value appreciation but also from dividends paid to shareholders.
Here are the main reasons why investors choose stocks:
Co-ownership: When you buy stocks, you become a co-owner of a company and are therefore entitled to a share of its profits.
Dividends: Many companies pay regular dividends to their shareholders, providing an attractive source of income.
Value appreciation: Stocks can increase in value over time, offering a valuable long-term opportunity for building wealth.
Voting rights: As a shareholder, you often have the right to take part in key company decisions, such as electing the board.
Besides these advantages, there are also special events known as corporate actions that can affect the value or structure of stocks. These include share buybacks, changes to dividends or mergers. To learn more, check out our guide on corporate actions.
Why invest in ETFs?
ETFs offer a way to invest in the market by giving you access to various securities without needing to select individual ones. Many investors choose ETFs because they’re an easy way to diversify a portfolio while remaining flexible.
Here are the main reasons many investors choose ETFs:
Diversification: With an ETF, you invest in multiple securities, which reduces the risk compared to investing in individual stocks.
Simplicity: ETFs are easy to buy and sell.
Cost-effective: ETFs are often cheaper than actively managed funds, as they’re passively managed and come with low management fees.
Flexibility: ETFs can be bought and sold during stock exchange hours, offering you high flexibility.
