Stocks vs. ETFs: What's the Better Way to Grow Your Portfolio to $1 Million?

Investing in the stock market is an excellent way to grow your savings. And over the years, it has become easier to choose from a wider range of investments, including many types of exchange-traded funds (ETFs).

By investing in ETFs, you can have a broad position in many stocks. But with picking individual stocks, one top-performing investment can generate huge returns. Nvidia is perhaps the best example, with its 1,900% gains over the past five years.

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Unfortunately, picking the next Nvidia is easier said than done. The market can be risky, and there are many factors to consider. Below, I'll look at whether you're better off investing in stocks or ETFs if your goal is to get to $1 million over the long term.

The case for investing in stocks

Investing in individual stocks has the allure of picking a big winner and turning a huge profit from it. And you don't necessarily have to go into the weeds to find companies that are in their early growth stages. Sometimes the best options are lying out there, right in plain sight.

For example, if you bought any of the "Magnificent Seven" stocks five years ago, you would have more than doubled your money.

NVDA data by YCharts.

You can also allocate a modest amount of money into multiple stocks that you feel good about. If one of them generates a significant return, that can offset the ones that may not have turned out to be such great buys.

Warren Buffett's Berkshire Hathaway, for example, holds positions in many underwhelming investments, including Coca-Cola and Kraft Heinz, which have routinely underperformed the markets, with the former rising by 12% over the past five years, and the latter declining during that stretch. But Berkshire's massive gains from Apple have more than made up for those underwhelming returns.

When picking individual stocks, you have a lot of flexibility in your investing strategy. You can pick a few promising stocks to track or simply hold a large basket of investments.

By picking all the stocks you want, you don't have to worry about whether a fund has the right weighting or includes stocks you maybe don't really want to have a position in; you can be in complete control of your portfolio and can adapt to changes in the market as quickly as you need to.

The case for going with ETFs

ETFs can generate great returns for investors while balancing risk as well, which can be key when investing for the long haul; you want to make sure your portfolio is safe.

Investing in the top stocks on the Nasdaq exchange can be an excellent way to track great tech stocks without worrying about picking individual winners. The Invesco QQQ Trust tracks the Nasdaq 100, which includes the top nonfinancial stocks on the exchange. Over the past five years, the Invesco fund's returns are up around 130% -- that's better than some of the Magnificent Seven stocks performed during that time frame.

Just as with stocks, investors can pick ETFs that suit their own strategies. While some are diverse and focus on safety, there are also those -- like the Invesco QQQ Trust -- that are highly focused on growth stocks and other investments that can deliver stellar returns.

ETFs can seem like they are suited primarily for the risk-averse, but as they have evolved over the years, there are many options for growth investors to consider, too.

The big benefit of ETFs is that you can have easy access to many stocks through just a single ticker, which means you may not need to hold many investments in your portfolio. This can be preferable if you're investing for the long term, because the process of growing your portfolio can be as simple as putting money regularly into your ETFs over time.

With individual stocks, you may need to consider their valuations and which is a better buy at that point in time. ETFs can be more suitable for long-term investment strategies.

One question that could help you decide which route to take

Deciding whether to invest in stocks or ETFs can come down to simply asking yourself how much time you want to allocate to picking stocks. If you're comfortable with keeping on top of how multiple stocks are doing, looking at their earnings numbers, and analyzing developments in their industries, then it may be a suitable approach.

It sounds like a lot of work because it can be, but there's also a significantly larger payoff that can come from investing in top growth stocks rather than holding a position in many stocks through an ETF.

If you're comfortable with picking stocks and tracking them, that may be the better option. But if you want to minimize risk and seek diversification, then putting money into one or more ETFs can be the better strategy.

Or you can choose a mix by investing the lion's share of your money into an ETF and spreading out the remainder of your investment dollars into growth stocks.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Kraft Heinz and Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.