Is it really worth it to invest in individual stocks?

[surprising]

Mr Market hit all time highs today. So did my net worth and I suspect many people's net worth. If I look at a chart of my net worth vs SPY, they look identical. I have individual stocks, market etfs, bond fund etfs and cefs, cash, real estate in my portfolio. Yet with all this 'diversity' my net worth seems to just track the market anyway. I've heard of the two stock portfolio idea - 1 market fund, 1 bond fund - does anyone here do this or have a similar simple portfolio? Has it worked out well?

 

[audreyh1]

Not to me. I use just a few index funds and try to keep things as simple as possible. I can easily see going to 1 market fund, two bond funds (short-term and intermediate), and one high quality money market fund. I’m pretty much evolving that way already as I don’t add new money to other funds. I always think about what my older self might be comfortable with.

 

[TheWizard]

No, but I own a few different indexed ETFs, no individual stocks.
My largest holding is VOO/VIIIX (S&P500) but I have meaningful $$$ in VGT/QQQ/MGK which are more volatile but have also outperformed VOO in recent years...

 

[Golden Mean]

Probably not worth it. I do some single stock buying as a hobby, now that I am retired but I wouldn't have tried it while working.

 

[skipro33]

I have one equity index fund, matches the S&P500, Fidelity 500 Index fund (FXAIX), and I have cash. I used to do bonds, but over the past several years, a simple government cash account, in my case I stash in Fidelity Government Money Market (SPAXX). I have 90+% in the S&P fund, the rest in the MM savings fund and my local bank with some actual dollars I keep at hand.

I did this back in 2012 when I retired. Since then, I've not taken any draws from the account, having a pension and taking SS at 62. It has doubled and doubled again in value. I started with $500,000 and its approaching $1.8M and probably will today.

 

[Qs Laptop]

To answer your question, take any of the top ten stock holdings in the S&P500 index fund--NVDA, AMZN, MSFT, GOOG, APPL, etc. and compare them to the S&P500 index funds--VFINX, FXAIX, etc. over 1 year, 3 years, 5 years, 10 years.

See which ones beat the index funds and which ones didn't. There's your answer.

 

[Aerides]

Individual stocks - big names that are already in the S&P? Not really worth it.
Little stocks that are more obscure? Only worth it if you bet right - it's just dressed up gambling, even if you "do your research"

And you can go "oh but my pick of XYZ beat the market!" - yeah so did my 40 shares of facebook I bought on IPO day. But that's just luck.

 

[tulak]

Holding anything in your portfolio that’s less than 5% won’t make a meaningful difference overall. It could even be higher than 5%.

I have a couple individual stocks for the fun of it, but I mostly own three asset classes: US Total, Intl Total, and TIPS (3 funds). Works well enough for me.

And I’ve thought about bailing on international. I don’t add to it, so it’s becoming a smaller part of my equity allocation.

 

[Lorenzo]

I never "invested" in individual stocks; more like placed a few bets over the years with money I'd be just as willing to lose at the blackjack table. The last time I dabbled in individual stocks was decades ago. My actual "investments" are currently in just a handful of index ETFs, one of which tracks the S&P, and in earlier years were in mutual funds. My investments have in total underperformed the S&P a bit, which is to be expected.

 

[Koolau]

I'd probably do the "couch potato" approach, but I do want a bit more diversity so I invest in S&P AND Vanguard X-USA fund to get a bit more world exposure. I use a short term bond fund and a GIF for fixed and then some MYGAs. Actually a bit more complicated than I like but I'm in inertia mode right now, so no changes planed. It's still pretty simple.

I don't really "count" my one stock - old megcorp legacy. It's been on a tear of late and I'm gonna hang onto it. I'd never have invested in it but it stemmed from my 401(k) match and stock-in-lieu kind of offerings by Megacorp over the years.

 

[Route246]

The simple answer to your question is no, assuming you are in this forum because you are rational, objective, patient and thoughtful.

 

[Montecfo]

I asked a bunch of people who have been taught to believe individual stock investing is a risky gamble whether investing in individual stocks is worth it. Here is what they said.

 

[PlayinwithFIRE]

Early on I spent a lot of time trying to pick winners-i found it fun. This required researching companies , their products, determining competition, overall market trends, global issues affecting values etc etc with very inconsistent results. I never got into the graph cult "oh its a hockey stick bend with an upward lilt to the cranial lobe..that means.."

Anyways, my experience was..it took too much time and a least the way I was trying to do it, didn't work well enough to continue wasting my time.

pwf

 

[Koolau]

Early on I spent a lot of time trying to pick winners-i found it fun. This required researching companies , their products, determining competition, overall market trends, global issues affecting values etc etc with very inconsistent results. I never got into the graph cult "oh its a hockey stick bend with an upward lilt to the cranial lobe..that means.."

Anyways, my experience was..it took too much time and a least the way I was trying to do it, didn't work well enough to continue wasting my time.

pwf

20 years ago, I hired a well-known professional company to pick winners for me. They failed. They made money - I didn't. Any more questions?

 

[triangle]

If you are primarily invested in index funds, then I think individual stocks don't help that much, but also do not hurt very much.

I read an analysis article 20 years ago or so (and searched for it years later but could not find it) that showed a 10 stock portfolio, 25 stock portfolio, 50 stock portfolio, etc. as compared to the whole market and found that the returns of these smaller portfolios closely matched the market after a certain number of stocks were held. The exact numbers are something I cannot recall and I have looked for a similar study but never found one, but I believe around 30-40 individual stocks was all it took to have a strong correlation to the market.

Which I think makes a lot of sense mathematically, unless one is willing to make big "bets" they are not going to outperform (or under-perform) the market. An as long as there is some reasonable diversification there is going to be a correlation with the market return. Especially in a rising tide type of market.

 

[gcgang]

Index investing didn’t exist when I started investing. I’m pretty much the ultimate buy and hold investor having held several positions over 40 years. Switching to indexes now would trigger enormous tax liability and I save $ by avoiding those egregious index fees. lol.

 

[Andre1969]

I bought a few shares of Apple and Google back around early 2005, and have dabbled with them ever since. I remember paying around $88/share for Apple, but it did a 2:1 split soon after, and I think I bought more right after the split. I first bought Google around $185/share.

Long term, I'm sure either of those has done much better than the broader market. But, they've also been much more volatile. If I had simply invested everything over the years into either of them instead of various mutual funds, other stocks and such, I'd be a lot better off, at this moment in time. But, who knows what the future might hold.

And, I don't think I would have had the guts to have everything in Apple, or Google, or even a 50/50 split.
FWIW, looking at my online brokerage account, it's showing my gain in Apple at 673.91%. The original amount that I bought would no doubt have a much larger gain than that, but I've sold some off over the years to lock in gains, and then bought some back on the dips. Overall, this brokerage account shows a gain of 117.37%. While that doesn't sound impressive, considering I've had it for over 20 years (I opened it around 2002-2003), there have also been a lot of dividends that get reinvested, as well as selling some stocks and buying others, all of which raise the cost basis, but not how much I actually invested into the account.

Anyway, I'm a believer that you might beat the overall market with individual stocks. In a fashion similar to how you might win the lottery, or you might get hit by a chunk of wing from a 747 flying overhead. Overall though, I think slow and steady, and patience and perseverance, win the race.

 

[Koolau]

Anyway, I'm a believer that you might beat the overall market with individual stocks. In a fashion similar to how you might win the lottery, or you might get hit by a chunk of wing from a 747 flying overhead. Overall though, I think slow and steady, and patience and perseverance, win the race.

Yeah, with hindsight, I'd have never sold any of my company's stock in my 401(k) plan. I would be a one-percenter for certain by now.

 

[Andre1969]

Yeah, with hindsight, I'd have never sold any of my company's stock in my 401(k) plan. I would be a one-percenter for certain by now.

The first 401k I had was with Boeing. I started investing into it the last two weeks of 1997 (we got paid every week back then), and stopped investing at the end of 1999, when I went to another company. When I left the company, it had $6322 in it, and its cost basis was $5810. So, it hadn't made much, in those first 2 years and two weeks.

But, it ended up peaking out in early 2019, around $61,000. So that's a return of what, about 10.5X over roughly 21 1/2 years. For most of that, it was very heavily invested just in the Boeing stock fund, but in its later few years, I started moving some of it into their bond fund and their SP500 fund. So, when Boeing crashed, that helped soften the blow, somewhat.

I finally rolled it over and combined it with another rollover IRA I have, in January of this year. It was down to $45,500, so it had taken quite a blow, compared to 2019. So, it was still roughly a 7.8X return. Still not too shabby I guess, over the course of roughly 26 years and a month.

Just out of curiosity, I put in that same rough date range (11/30/97 through 1/31/24) into a chart on Morningstar's website, using Fidelity's SP500 fund (FXAIX), and it gave me a 710% return So, considering a 7.8X return is really a 680% return, even in this case, it seems I would have done better just keeping it all in their SP500 account

 

[pjigar]

Simple is better. You will be less emotional with index funds. For the record, over the years, we have simplified our portfolio to the following:
33% rental RE
33% VTSAX
33% BRK-B

The only reason I own individual stock (BRK-B) is because it is kind of an equity mutual fund and is somewhat negatively correlated with the overall equity market. For philosophical purpose, I treat rental RE as a bond fund (provides cashflow) and BRK-B as a somewhere between equity fund and bond fund (balanced fund). So in my mind, I have 50/50 mix of "bonds" and stocks. I know this is a lot of hand waving but works for me. YMMV.

 

[Qs Laptop]

I read an analysis article 20 years ago or so (and searched for it years later but could not find it) that showed a 10 stock portfolio, 25 stock portfolio, 50 stock portfolio, etc. as compared to the whole market and found that the returns of these smaller portfolios closely matched the market after a certain number of stocks were held. The exact numbers are something I cannot recall and I have looked for a similar study but never found one, but I believe around 30-40 individual stocks was all it took to have a strong correlation to the market.

Yes, people need to remember that the typical S&P500 index fund has about 33% of its holdings in the top ten stocks by market cap.

The typical "100 index fund", i.e. QQQ, has about 50% invested in the top ten stocks by market cap.

Large cap growth mutual funds, i.e. FBGRX, TRBCX, have about 66% invested in the top ten stocks by market caps.

The result is that most people are in essence buying individual stocks. The bottom 50% of the holdings in any index fund is essentially dead weight, it does drag down your performance (though it does lessen volatility.)

 

[38Chevy454]

Individual stock picking can be fun, but ultimately it is like throwing darts at the board. Some may miss the board completely, some land on high points, few get double or triple points, and infrequently you get a bullseye. In the end, widely held diversification and market index funds are hard to beat. Individual stocks will be a lot more volatile.

 

[rpguy4]

Individual stock picking can be fun, but ultimately it is like throwing darts at the board. Some may miss the board completely, some land on high points, few get double or triple points, and infrequently you get a bullseye. In the end, widely held diversification and market index funds are hard to beat. Individual stocks will be a lot more volatile.

Back in the day, a work buddy and I signed up for a Motley Fool subscription service. It was an annual membership sort of thing. Every few weeks MF would publish their buy/sell recommendations. What ended up happening at the end of the year is that you owned about 20+ stocks. Most performed below expectations, but a few exceeded expectations. Definitely a crap shoot. Darts at a dart board analogy

 

[CaliKid]

Individual stocks are great if you want to gamble on particular companies.... Call it educated gambling if you wish but taking larger stakes in one company is gambling. However, it really comes down to risk v. reward. Most people that tout there great stock returns just take on more risk so it's great in hindsight... if it works out... but of course we typically don't hear when it doesn't!

 

[aaronc879]

I choose poorly when investing in individual stocks so now my portfolio consists of around 60% Total Stock Index Fund, 20% Balanced Fund that consists of 2/3 bonds and 1/3 equities and 20% cash in a Money Market Fund. Simple. I could make it even simpler by getting rid of the balanced fund but i've had it for a couple decades and it's in a ROTH so i'm just not touching it for another couple decades.