If you’ve been keeping up with financial news, you’ve probably seen a flurry of stocks soar over the last week. While it can be easy to get swept up in the excitement, here’s why I avoid buying individual stocks:
While all investments carry risk, investing in individual stocks carries a significantly higher risk than investing in funds. When I invest in a fund, I’m investing in a diverse portfolio designed to weather the ups and downs of the market. In other words, I take on the risk of the market. However, if I invest in an individual stock, I’m taking on the risk of that individual company. If the company has a bad quarter, my stock could plummet even if the market is doing well.
When investing, I want to be as knowledgeable as possible about where my money is going. As an ethical investor, I’m interested in both the returns for me personally and the societal returns. In other words, I don’t want to support a company that has a negative impact on the world.
If I wanted to make well-informed investments in individual stocks, it would require research, research, and more research. With the risks already being so high, it’s hard to justify all the time it would take to invest in individual stocks, especially when there are other options.
As Financial Planner Neal Frankle says, “With individual stocks, you could hit some home runs. But when you swing for the fences, you strike out much faster.” So, while my returns could be massive, it’s much more likely I would lose money first.
In the words of Warren Buffet, “I don’t think most people are in a position to pick single stocks.”
With all the obstacles to making sound choices on the stock market, I agree. However, everyone can invest. Other options, such as investing with a firm or investing in mutual funds, tend to have better returns and significantly lower risk.
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