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. All that has to happen is for the company you’ve invested in to run into any number of problems. An accounting problem. A supply line problem. A CEO problem. Any kind of problem really, and a problem you have no control over.
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. In order to do a good job investing in individual stocks, you have to spend hours and hours poring over financial reports and industry 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. And many people go into this without doing any research and just by other people’s word of mouth. This can be so dangerous when it comes to your money being invested in an environment you know nothing about.
In the words of Warren Buffet, “I don’t think most people are in a position to pick single stocks.”
Mutual funds, equity funds and ETFs are an excellent way to go if you’re like most people who want to grow their money safely but don’t have the time to do the research or the stomach for all the risk. I’ll go on record (again) and say that I don’t think investors should buy and hold mutual funds. It makes sense, in my opinion, to develop a method for “taking the market’s temperature.” Invest when the market is strong and sell when the market is weak. Of course, no method is without flaws. Any investment strategy has advantages and disadvantages. This approach, on the other hand, can be useful if your goal is to grow your money safely while avoiding catastrophic losses. And if you aren’t a seasoned investor they should work with an investment adviser/or an investment company like Invested Interests!
Other options, such as investing with a firm or investing in mutual funds, tend to have better returns and significantly lower risk. Since mutual funds are more tax-efficient than actively managed funds. And this way you can even invest in things that align with your values! Ready to start your investing journey? Reach out to start an account with no minimum at https://www.investedinterests.com/contact-us/