The reason why you shouldn’t invest in individual stocks is because it is extremely risky. You are putting all of your eggs in one basket and if that stock does bad then you could loose all of your money. If you pick individual stocks you will almost certainly loose. An alternative is to invest in a mutual index fund. This will allow you to invest in the entire economy instead of one stock.
Investing in individual stocks is a folly because no one can see into the future and tell which ones will go up and which ones will go down. In addition investing in individual stocks increases your exposure to risk as there is less diversification to absorb poorly performing stocks. Another reason to avoid individual stocks is that you must pay a commission on each and every one you trade, which over the course of time adds up to be a significant amount.
An alternative to investing in individual stocks would be to invest in the entire market. This can be accomplished through investment vehicles such as a low cost index fund from Vanguard or Schwab. When you spread your investments over the whole market in this fashion, you position your portfolio to withstand the wild swings that indivdual experience.
You are putting all your eggs in just a few baskets. You are betting that those handful of stocks will beat the average return on the market. Which is unlikely due to 1 bad stock pulling everything down. If you own 20 stocks each one is a good part of your portfolio while if you own index funds that own 2000 stocks each individual stock is a small part of the whole. You are better off being well diversified with many different stocks. You can own a few index funds and be as well diversified as you would ever need to be. You dont have to watch your stocks and trade them all the time with index funds, you just rebalanced your portfolio about once a year if you want to and let it be.
(1) When you invest with individual stocks you take your risk than you should. This applies to a person who owns 1 stock or even 10 or 15. That is not diversification.
(2) When you invest with individual stocks you end up trading with people who have a great deal more information at their fingertips than you ever will.
(3) When you invest with individual stocks you are making the case that you know something others don’t. You’re wrong!
(4) By owning index funds you can diversify all over the world at the lowest possible cost. There is no timing the market. There is no finding the right sectors. There is none of that.
(5) Listen to this guy: Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals. – Warren Buffett
The reason why you shouldn’t invest in individual stocks is because it is extremely risky. You are putting all of your eggs in one basket and if that stock does bad then you could loose all of your money. If you pick individual stocks you will almost certainly loose. An alternative is to invest in a mutual index fund. This will allow you to invest in the entire economy instead of one stock.
Investing in individual stocks is a folly because no one can see into the future and tell which ones will go up and which ones will go down. In addition investing in individual stocks increases your exposure to risk as there is less diversification to absorb poorly performing stocks. Another reason to avoid individual stocks is that you must pay a commission on each and every one you trade, which over the course of time adds up to be a significant amount.
An alternative to investing in individual stocks would be to invest in the entire market. This can be accomplished through investment vehicles such as a low cost index fund from Vanguard or Schwab. When you spread your investments over the whole market in this fashion, you position your portfolio to withstand the wild swings that indivdual experience.
You are putting all your eggs in just a few baskets. You are betting that those handful of stocks will beat the average return on the market. Which is unlikely due to 1 bad stock pulling everything down. If you own 20 stocks each one is a good part of your portfolio while if you own index funds that own 2000 stocks each individual stock is a small part of the whole. You are better off being well diversified with many different stocks. You can own a few index funds and be as well diversified as you would ever need to be. You dont have to watch your stocks and trade them all the time with index funds, you just rebalanced your portfolio about once a year if you want to and let it be.
Great comments, gentlemen. Let’s review.
(1) When you invest with individual stocks you take your risk than you should. This applies to a person who owns 1 stock or even 10 or 15. That is not diversification.
(2) When you invest with individual stocks you end up trading with people who have a great deal more information at their fingertips than you ever will.
(3) When you invest with individual stocks you are making the case that you know something others don’t. You’re wrong!
(4) By owning index funds you can diversify all over the world at the lowest possible cost. There is no timing the market. There is no finding the right sectors. There is none of that.
(5) Listen to this guy: Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals. – Warren Buffett