Individual Stocks

Selecting Individual Stocks

Why do some people prefer to buy individual stocks, instead of purchasing an index fund or a mutual fund?

There are several reasons why some individual investors prefer to choose and invest in individual stocks, rather than invest their money into index funds or mutual funds. Some experts believe that when you buy an index or mutual fund, you may get many lower-performing stocks along with many top-performing stocks. Even if the top performers do very well, their performance is pulled down by the poorer-performing stocks. Although diversifying one’s portfolio may be a great strategy over the long term, some individual investors believe in specializing in a sector, as they can become more familiar with and learn the dynamics of the sector, and earn a profit. The investor who researches and acquires individual stocks also has a strong interest in the stock market, and is willing to spend the time to do so. Individual investors who cannot be bothered with spending the time to identify, analyze, and invest in individual stocks would probably be better served by buying index or mutual funds. Other experts assert that some individual investors perceive an investment in an index or mutual fund is in some way “safer” than owning a portfolio of individual stocks. If you own an index fund, and the underlying index or market falls—no matter how diversified the index may be—the value of the portfolio will decline, in the same way it would if there were a broad decline in some of your individual stocks. Many experts believe that simply owning an index or mutual fund is no guarantee against losses.


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