Stocks, tracker funds, and ETFs: what’s the difference?
The quick version:
- A stock gives you a slice of a single company. It can grow a lot – but if that company struggles, so does your money.
- A tracker fund spreads your money across hundreds of companies at once, automatically. This means your money is more protected if some of those companies don’t do well.
- An ETF does the same thing as a tracker fund, but you can buy and sell it more often during the day. This works slightly differently with Moneybox – which we’ve explained in the ETF section below.
When you start investing, it doesn’t take long before you come across these three terms. They get thrown around a lot – sometimes interchangeably – but they’re actually quite different things. Here’s what you need to know.
Stocks: owning a piece of a company
When you buy stocks (sometimes called shares or equities), you’re buying a small ownership stake in a company. If you buy Apple stock, you literally own a tiny piece of Apple.
The upside is that if the company grows and becomes more valuable, your stake grows too. Some companies also pay out a portion of their profits to shareholders, known as a dividend – a bit like receiving a bonus just for being an owner.
The downside is that if the company struggles, the value of your stock falls with it. Putting all your money into a single company is a bit like backing one horse in a race – the potential reward is real, but so is the risk.
With Moneybox, you can invest in a range of US stocks, including well-known companies like Apple, Amazon, Tesla, and NVIDIA.
Tracker funds: investing in lots of companies at once
A tracker fund – often called passive fund or index fund – does something clever. Instead of picking one company to invest in, it tracks an entire index. An index is just a list of companies grouped together, like the FTSE 100 (the 100 largest companies on the UK stock market) or the S&P 500 (500 of the biggest companies in the US).
When you invest in a tracker fund, your money is spread across all the companies in that index. So rather than owning a slice of one company, you own a tiny slice of hundreds. This is called diversification, and it’s one of the most effective ways to manage risk – because if one company in the index has a bad year, it’s unlikely to drag the whole thing down with it.
Most tracker funds Moneybox offers are passive, which means they simply follow the index rather than trying to beat it. This can keep costs lower because you aren’t paying for a fund manager to actively look after the performance of the fund.
We do also offer a few carefully selected low-cost active funds. This means the fund doesn’t just rely on the companies in the index performing well, and there is active involvement by the experts to choose the investments – which can make these funds more expensive than their passive counterparts.
The Moneybox Starting Options – Cautious, Balanced, and Adventurous – are all built from a mix of tracker funds, put together by experts to suit different attitudes to risk.
ETFs: funds that trade like stocks
An ETF, or exchange traded fund, is very similar to a tracker fund. The key difference is in how they’re bought and sold. Tracker funds are priced once a day and you typically need to get your order in before the fund is priced.
ETFs, on the other hand, are listed on a stock exchange and can be traded throughout the day while the stock exchange is open – just like individual company shares. That means you have more control over when exactly you buy or sell.
ETFs also tend to cover more specific corners of the market. With Moneybox, you can invest in ETFs focused on things like the S&P 500, automation and robotics, renewable energy, or global healthcare – so if you want to put your money behind a particular sector or idea, an ETF is a great way to do it.
While the ETFs Moneybox offers are called ETFs on our platform – because that’s how the companies that provide them have named them – they aren’t priced or traded in real time, but once a day in the same way that our other funds are.
Now you know the difference – the next step is simpler than you think. Opening a Stocks & Shares ISA with Moneybox takes a few minutes, and you can start investing in the funds, ETFs, and stocks you’ve just read about straight away.
So, which one is right for you?
There’s no single right answer – it really depends on what you’re looking for.
If you’re just starting out and want to keep things simple, a fund (via one of our Starting Options) is a great place to begin. You get instant diversification, lower costs, and you don’t need to make lots of individual decisions.
If you have a view on a specific part of the market – say, you think clean energy companies have a big future – an ETF lets you back that idea while still spreading your money across multiple companies.
And if you want to own a stake in a specific company you believe in, individual stocks give you exactly that – though it’s worth remembering the risk is higher when your money is concentrated in one place.
Many investors do all three. That’s kind of the point. Building a mix of stocks, funds, and ETFs means your money is working across different parts of the market at the same time.
It takes less time to open a Stocks & Shares ISA with Moneybox than it did to read this article. And once it’s open, everything you’ve just learned about — stocks, funds, and ETFs — is right there waiting for you to explore.