Picture yourself at the farmer’s market. One vendor sells individual pieces of perfect fruit—each apple polished, each orange carefully selected. Another offers pre-made fruit baskets with a mix of everything. Most people grab the convenient basket, but choosing individual fruits gives you exactly what you want while saving money.
This scenario captures one of the most important decisions for pre-retirees: whether to own individual companies through direct stock ownership or settle for the convenience of ETF “baskets” that most financial advisors recommend.
The Problem with the Standard Playbook
Most RIA firms and financial advisors follow the same approach: invest your money into broad-market passive ETFs, rebalance once or twice yearly, and hope for the best over time. It’s the investment equivalent of buying that pre-made fruit basket without knowing if you like half the contents.
The wealthiest investors tell a different story. They don’t build wealth by owning everything—they build it by owning the right things.
When you buy individual fruits, you inspect each one. You choose the ripest apple, sweetest orange, firmest banana. You know exactly what you’re getting and have complete control.
Pre-made baskets give you someone else’s choices—fruits you don’t like, some overripe, others not ready. You pay for convenience but sacrifice control, quality, and often pay more.
The same applies to investments. Individual stock ownership lets you select specific companies you understand and believe in. ETFs give you whatever the fund includes—the good, bad, and mediocre.
The Control Advantage
With individual stocks, you become your wealth’s portfolio manager. When Microsoft announces disappointing earnings, you can hold, sell, or buy more based on your analysis. With ETFs, you’re stuck with the fund or index manager’s decision.
Individual stock ownership gives you:
- Shareholder voting rights
- Direct dividend payments
- Precise tax-loss harvesting
- Concentrated positions in top ideas
- Ability to avoid unwanted companies/sectors
Hidden Costs
ETF expense ratios seem minimal at first glance, but their cumulative effect over time can significantly erode portfolio returns. Consider a $500,000 portfolio evenly split between two widely held ETFs:
SPDR S&P 500 ETF (SPY): Expense Ratio of 0.09%
Invesco QQQ Trust (QQQ): Expense Ratio of 0.20%
This allocation results in a blended expense ratio of approximately 0.145%. For a $500,000 portfolio, assuming an average annual growth rate of 8%, the total fees paid over time become significant:
After 10 years: The fees would total over $11,000
After 15 years: This figure grows to more than $20,000
After 20 years: The cumulative cost reaches nearly $34,000
And these fees don’t count the opportunity cost of settling for market-average returns. Also, if you work with a financial advisor who charges a typical 1% annual management fee on top of ETF expenses, the total drag on your portfolio can be substantially higher.
An Actively Managed Portfolio
For many investors, passive ETFs are a sensible good point. They offer broad diversification and market-average returns. But for investors with more assets such as $300,000 or more, settling for “average” may not best align with their goals for growth.
This is where the discipline of active portfolio management matters. The benefits move beyond simple market exposure to true portfolio construction:
- A Focus on Quality, Not Quantity: Instead of owning hundreds of companies in an index—including the mediocre and unprofitable—an active manager can build a concentrated portfolio of 20-30 exceptional businesses with durable competitive advantages and strong leadership.
- Proactive Risk Management: A passive fund is required to hold stocks even as they decline. An active advisor can dynamically manage risk, trimming positions that have become overvalued or show deteriorating fundamentals, protecting capital in a way a passive index simply cannot.
- Integrated Tax Strategy: Tax-loss harvesting and gain realization aren’t just year-end tasks; they also matter to performance. An advisor can coordinate these strategies with your overall financial picture.
The financial advisor industry has broadly embraced passive ETFs because they are easy and simple to implement. But for your financial future, easier doesn’t mean better.
When you partner with an advisor who specializes in individual stock portfolios, you’re moving beyond a one-size-fits-all product. This is the real difference between buying a fund and building a strategy.
Ready to move beyond the standard advisor playbook?
At Paraiba Wealth, our focus is on building actively managed portfolios—a strategy designed for greater control, tax efficiency, and tailored to you. If you’re ready to see what this looks like, book a no-obligation initial call today.