It’s a common question: Should I pick individual stocks? And I get it—it’s tempting. Maybe you’ve heard a friend or neighbor bragging about their big wins, riding the wave of a high-performing stock. It’s easy to feel that pull, imagining the thrill of being the one who nailed it, the one who “won” the market.
But here’s the catch: stock-picking is far from predictable. Are you digging into the balance sheets? Analyzing financial ratios? Or are you just speculating, hoping to hit the jackpot with your picks?
At its core, picking individual stocks is risky. A better approach for most investors is to focus on diversification—investing in mutual funds or ETFs that are managed by professionals. These fund managers do the hard work for you, analyzing financials, researching companies, and carefully assembling diversified portfolios of stocks and bonds. This spreads out risk while giving your money a solid chance to grow.
If you need a cautionary tale, just look at the history books. Back in the 1970s and 1980s, companies like Sears and Kmart seemed untouchable—"can’t-miss" investments. And then, one day, they went bankrupt. Imagine if your retirement savings were tied up entirely in one of those stocks. That’s the danger of putting all your eggs in one basket.
So, how much is too much to invest in individual stocks? As a general rule, I’d suggest keeping it to no more than 5% of your investable assets. The majority—about 90%—should be in a diversified portfolio designed with the guidance of a trusted financial advisor.
When you’re picking individual stocks, it’s not really investing—it’s gambling. And gambling isn’t a strategy for building long-term wealth. Instead, work with a financial advisor to create a diversified portfolio tailored to you and your family’s goals. That way, you’re not leaving your future up to chance.
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.