What is the difference between purchasing an ETF and buying the individual underlying assets?

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I currently own a few VOO shares. If my understanding is incorrect, the ETF is a grouping of several underlying assets with varying percentage ratios. Why am I unable to just purchase the underlying assets and achieve portfolio balance in the same manner as Sofi or Vanguard, in the event of spying? Is working alone merely more difficult, and is there any situation where working alone would be preferable?

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You are paying a fee (0.03% for VOO) to the company managing the ETF, but you don’t get voting rights since you don’t own the underlying stocks.

If you prefer, you can do it yourself—trade your time to avoid the fees and gain voting rights.

The S&P 500 is rebalanced every quarter if I recall correctly. With an ETF, that rebalancing happens automatically. Otherwise, you’d need to buy and sell the underlying stocks on your own.

It is simply a trade-off between time and convenience.

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Yeah, it is a massive time trade-off. Buying shares in around 500 companies even once would be tedious. Doing it multiple times a month and rebalancing regularly would be a huge task. :100:

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And don’t forget, you would have to pay taxes each time you realize gains by selling stocks. With an ETF, you don’t pay taxes until you sell the actual ETF.

VOO covers around 500 stocks. Half of the portfolio is concentrated in just 25 stocks, 25% is in 77 stocks, and the remaining is spread across 399 stocks. If you wanted to track just the top 25 (50% of the index), you might manage it quarterly. But remember, you’d be paying taxes every time you sell if it is in a brokerage account.

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I believe someone estimated the cost. Assuming you had to purchase a minimum of one share, the total cost to purchase all S&P 500 businesses in the appropriate weight came to about $15 million, which would only be needed to replicate the index.

Now that I understand that we have fractional shares, even if we now need to purchase.001 shares, it still leaves about $15,000 to purchase the firms in the appropriate weighting.

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Remember 10 years ago when every transaction cost $7.99? Those were truly dark times. Now, you can just buy one ETF and be all set.

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That is a nice perk! Schwab ETFs being commission-free was definitely a great feature, especially when trading costs were higher. :100: