Bitesize: Stock vs ETF vs LIC: Understanding the Differences
You may have heard of stocks, exchange-traded funds (ETFs), and listed-investment companies (LICs), but what exactly are these options and how do they differ? In this Bitesize, Alec and Bryce define the terms for you - so you won't ever be confused again!
Stocks represent ownership in individual companies. When you invest in stocks, you become a shareholder in that company and have an interest in its success. Historically, stocks have been one of the best-performing asset classes, but they are also known for their volatility.
An ETF is a basket of securities, such as stocks or bonds, that trade on an exchange like a stock. When you invest in an ETF, you are buying a share of the entire portfolio, rather than investing in individual securities. This diversification helps to mitigate risk in your portfolio, and is one of the reasons ETFs have become increasingly popular.
LICs, also known as closed-end funds in America, are similar to ETFs in that they offer diversification by investing in a portfolio of securities. However, LICs are actively managed, which means they are managed by a professional fund manager who makes decisions about which securities to buy and sell.
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