If you do, or are in interested in individual stock investing, read on!
Let me get straight into it, I’m not going to bash individual stocks, in fact, I have a couple! I just want to share my thoughts with ya’ll on the topic.
For those that aren’t sure the meaning of an individual stock, it means that you have bought into the shares of one individual company. For example, you could have bought $5000 solely into Tesla or Nike and in return you receive $5000 worth of their shares and technically own a tiny tiny piece of the company.
As I said, I have a couple of individual stocks within my investing portfolio. Yes, primarily I have index funds but I too, as boring as I am (who creates a financial site in their free time?), like to occasionally live on the wild side.
Although my stocks have fluctuated, they thankfully haven’t bombed and continue to grow after short market drops.
I actually came across my stocks by luck, one pharmaceutical stock I have was a suggestion from a very well informed moneydock reader back when the price was much lower than it is now.
One of my others, which is linked to cloud technology (not the clouds you’re thinking of, but internet clouds) I found through stumbling upon a live financial analyst YouTube video. As always, I thoroughly did my own research before jumping in.
Before I made the scary move of actually investing, my initial thoughts were, how much should I invest?
I know that individual stocks can be more volatile than index funds yet, I want a bit of excitement and exposure to the possibly of quick growth.
After all, who doesn’t want to make a quick buck?
Although the answer entirely depends on your personal circumstance, I typically put in as much as I am willing to throw off a boat, or for non boat people, how much you’re willing to throw out of a moving car. This happens to equate to just under 10% of my total investment amount.
A good rule of thumb is to allocate 5-10% of your portfolio to individual stocks, this is known as play money.
I cannot stress enough the importance of researching the stock before buying, do your due diligence. Be comfortable with the possibility of losing it all but also understand that it’s a calculated risk and stick to your guns.
Although individual stocks are a bit of fun, I find comfort in knowing I am primarily invested into boring old index funds.
I simply don’t have time to consistently be watching the markets nor even have the knowledge to be able to judge the financial reports of multiple companies at once and therefore I stick mostly to index funds.
Read my article here, to learn more about index funds.
Ultimately, individual stocks are volatile and uncertain, most definitely not something to be plugging most of your money in to. Even though they might provide a better short-term gain, an index fund will provide long term gain and you’ll be able to sleep better each night.
Disclaimer: this is meant for the average investor and is not advocating for one type of investing other the way, it is simply my approach to investing.