ETFs vs. individual stocks: which strategy will make you richer in 2026?

There are two major camps in the investment world, which at times resemble religious sects. On the one side are the “passive index investors” who swear that the only right thing to do is to buy the whole market and go to sleep. On the other side are the “active stock pickers” who look for the next Amazon or Nvidia, believing that settling for the mean is for losers.

If you're just starting out or looking to rebalance your portfolio in 2026, you're likely to face the same dilemma: Should I buy ETFs (exchange traded funds) or pick individual stocks myself?

The answer is not black and white. It depends on your character, your timing and your tolerance for risk. In this article, we'll take both strategies apart, look at the statistics (which is surprising!) and suggest a solution that could be the “happy medium”.

What is what? Quick round of definitions

Let's make the terms clear before we go deeper, so that we speak the same language.

ETF (Exchange Traded Fund) - “Fruit Basket”

Imagine you are going to the market. Instead of picking out one beautiful apple and hoping it hasn't wormed inside, you buy a ready-made fruit basket with 500 different fruits. If one is rotten, it won't ruin the whole basket. In financial jargon, it's an index fund. For example, buying S&P 500 ETF (such as the popular SXR8 or VUSA), you buy a share of the largest US 500 companies in a single transaction. Your portfolio includes Apple, Microsoft, Amazon, but also hundreds of smaller companies. Your return is exactly the same as the market average.

Individual share - “Snaiper”

Here you go to the market and pick out just that one apple. You've done the analysis, tasted the peel, smelled the smell and you're convinced it's the best apple on the market. You buy a share in LHV Group or Tesla, for example. Your success depends 100% on the performance of that particular company. If the company is doing well, you can earn many times more than the market. If the company does badly (bankruptcy, scandal, poor results), you could lose a lot of your money, even if the overall economy is growing.

Round 1: returns and statistics (the hard truth)

Every investor's dream is to “beat the market” - to earn a better return than the S&P 500 index (which historically has returned around 8-101T$3T per year). How do individual stock pickers do it?

The statistics are stark here. SPIVA (S&P Indices Versus Active) reports, which are published every year, still show the same bleak picture for 2026:

For one year: Around 60% of professional fund managers underperform the index.
15 per year: Via 90% of professionals cannot beat the index.

Think about it for a moment. These are the people who have Bloomberg terminals, teams of analysts and who do this work 12 hours a day. If they can't beat the market, what are the chances that you can do it in the evening after work reading the news for half an hour?

This does not mean that it is impossible to get rich with individual shares. It is. If you bought Nvidia In 2020, you are probably very happy today. But it's like a lottery - there are few winners, many losers, but we only hear about the winners in the news. It's called the “survivor effect” (survivorship bias).

Winner: ETF (Long-term stability)

Round 2: risk and nerve centre

The economy is recovering in 2011, but we all remember the downturn of 2022. How do different assets behave in a crisis?

Individual share risk: The biggest risk for individual shares is the so-called “idiosyncratic risk”, or company-specific risk. An example from life: Once Nokia was the top of the world, today it is a shadow of its former self. Wirecard was Germany's tech darling until it turned out to be a fraud and the stock plummeted to zero. If your portfolio consists of 3-5 stocks and one of them falls 50%, your portfolio needs 100% of upside to recover. This is mathematically a very difficult task. Add to that the emotional stress - can you sleep when you see your favourite stock in the red while a friend's index fund is in the plus?

ETF risk: The ETF automatically diversifies risk. If you own a world index (e.g. VWCE - Vanguard FTSE All-World), you have holdings in over 3000 companies. If one of them goes bankrupt, it accounts for 0.01% of your portfolio and you don't even notice it. The ETF risk is “systematic risk” or market risk. If the whole global economy goes down, your fund goes down. But history has shown that the global economy always recovers (so far).

Winner: ETF (Une quality is better)

Round 3: costs and time

Time is money. Literally.

Individual shares - a time-consuming hobby: To be a successful individual shareholder, you need to do your homework. You need to read quarterly reports, follow the news, understand the P/E ratio and macroeconomics. It's exciting if it's your hobby. But if you have a family, a job and a gym, it can become a burden. Plus transaction fees. While platforms such as Lightyear or Interactive Brokers have lowered their fees, and trading through LHV on the Baltic Exchange is free of charge, you often pay a fee for each buy and sell on foreign exchanges. If you trade frequently (buy-sell), fees and charges eat into your trading costs. spread (the difference between the buying and selling price) your return.

ETF - “Buy and forget”: The ETF strategy is boring. You set up a standing order and the money automatically goes into the fund every month. You don't have to read the news. You don't have to worry about who's the US president or what the interest rate is. You spend 15 minutes a year investing. The costs are negligible. The management fees (TER) of popular ETFs are 0.07% - 0.20% per year.

Winner: ETF (Wins for the “lazy” investor)

Round 4: dividends and adrenaline

This is where it starts to tilt in favour of individual shares.

ETFs are boring: That said, with an index fund you can never brag at a sauna night that “I made 50% returns today”. The index moves slowly. It's getting rich at the speed of action. For many, especially younger investors, this is demotivating.

Individual shares offer opportunities:

Dividends: If your goal is cash flow (passive income), individual shares allow you to build just such a portfolio. For example, you could choose stocks from the Tallinn Port, Merko Ehitus or the US “Dividend Aristocrats” list, which will pay you a steady dividend of 5-8%. Most growth ETFs automatically reinvest dividends, which is good from a tax point of view, but less emotionally rewarding (no “cash in the account” effect).
Voting rights: As a shareholder, you are the owner. You can go to the Tallinn department store general meeting, eat a biscuit and vote on management decisions. This gives you a sense of ownership that the ETF does not offer.

Winner: Individual share (emotional satisfaction and cash flow)

Case study: Mart vs. Tiina (2021-2026)

To illustrate the difference, let us take an example from the recent past.

Tiina (Indeksinvestor): At the peak of 2021, Tiina started buying the S&P 500 index. In 2022, her portfolio fell by nearly 20%. Tiina did nothing but buy more every month (“Dollar Cost Averaging“). Today, at the beginning of 2026, Tiina's portfolio has not only recovered, but has made new highs. Her average return is positive because she bought cheaply during the downturn. She is calm.

Mart (Technology Fan): In 2021, Mart believed that the “old economy is dead” and bought popular “innovation shares” (such as the Zoom, Peloton, various crypto-related companies and the ARK Innovation fund). 2022 interest rate hikes wiped out these stocks, with some falling 80-90%. Although 2025-2026 has brought a recovery, Mard's portfolio is still in the red in many positions. It needs a rise of 400% to get back to zero. Mart is stressed and has stopped investing, calling the stock market a “casino”.

Lesson: With individual shares, timing is critical. With ETFs, time forgives bad timing.

The golden mean: “core and satellites” strategy

Do you have to choose just one? No. The savvy investor of 2026 will use a hybrid strategy called. Core Satellites (Core Satellites) for convergence.

It combines the security of ETFs with the excitement of individual shares.

How does it work?

Core - from 80% to 90% portfolios: This part consists of a broad-based ETF. For example MSCI World (world) or the S&P 500 (US).

Objective: Ensure you get a market average return and a secure retirement. This money is “sacred”, it is not to be gambled with.

Satellites (Satellites) - 10% to 20% from the portfolio: It's part of your “play money” or active strategy. Here, you choose the individual shares.

Objective: To try to capture the market and satisfy investment appetite.
What to buy?

Local favourites (e.g. LHV, Coop Bank) - support the Estonian economy and get dividends.
Sectors you believe in (e.g. Defence or AI) if you think they will grow faster than the rest of the market.

Why is this good?

This strategy protects you for their own stupidity. If your individual stock picks go completely wrong (fall to zero), you have only lost a maximum of 20% of your portfolio. This is painful, but not fatal. Your core (80%) will continue to grow peacefully. On the other hand, if you manage to find the next big winner, it will give your portfolio a nice boost.

Practical Recommendation 2026

If you're reading this article and wondering where to start, here's an action plan:

If you have less than €1000: Buy only a broad-based index fund (e.g. a fund with the “VWCE” symbol in the Growth Account in LHV or in Lightyear/IB). Fees for buying individual shares (minimum fees) eat into returns for small amounts.
If you have €10 000+: Build a foundation (ETF) and start slowly adding individual stocks that offer a good dividend or that you believe in for the long term.
Optimising taxes (specific to Estonia): As we talked about in the previous article, use Investment accounts.

For ETFs, give preference to Accumulating (profit reinvesting) funds. This way, you will not incur immediate tax liability on dividends or have to declare foreign income tax.
In the case of individual shares (especially in the US), be aware of double taxation on investment accounts. Baltic equities are the simpler and tax-free choice here.

Summary

The question of “ETF or individual share” is really a question: “Do I want to invest or trade?”

Investing (growing assets over a long period of time) is most effective with boring ETFs. It is a scientifically proven way to grow wealth. Trading (stock picking) is a business or hobby that can bring big returns but requires skill and luck.

Your portfolio doesn't have to be perfect, it has to be. sustainable. If a boring index fund puts you off investing, buy individual shares. If the volatility of individual stocks keeps you awake, buy an index.

The best strategy is the one you can stick to even when markets are in the red.