You heard from a friend who bought some stock in Nvidia or Amazon or Apple when it was cheap, and now those shares are worth five or six figures.
Those are inspiring stories. But how much can you safely invest in individual stocks?
Financial planners advise armchair investors and retirement savers that the smartest move is usually to buy shares of index funds, the kind that track the performance of broad stock indexes or the entire market. Single stocks tend to be much more volatile.
But millions of investors buy shares of individual stock, and lots of them have success stories.
Is there a place for individual stocks in your retirement portfolio? If so, how much is too much? We asked several investment experts.
Ordinary Americans are passionate about investing in individual stocks. A recent survey by the BlackRock Foundation and Commonwealth found that 54% of low- and moderate-income Americans (those earning $30,000-$80,000 a year) invest in capital markets, and that new investors favor single stocks over mutual funds and ETFs.
Investors may watch YouTube and TikTok videos from influencers who claim to have can’t-miss stock picks. They troll the internet for recommendations from The Motley Fool and Morningstar. Then, they sit back and wait for a stock to take off.
“There’s a certain element of fun to this,” said Zachary Rayfield, head of goals-based investing research at Vanguard.
Ready to buy some individual stocks? Here are a few tips.
If you choose to invest in single stocks, it’s best to start small, experts advise.
If you invest in index funds or target-date retirement funds, your investment will probably track the market as a whole. Stock indexes do well in some years, poorly in others, but they are far less mercurial than individual stocks.
With single stocks, you’re likely to see big swings, and not always up. If you’re just starting out, experts say, it’s wise to invest only a small share of your portfolio in individual stocks. That’s especially true if you’re investing with your retirement…
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