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Why I Used to Invest in Individual Stocks + Now I Don’t

By in Links, Money Management, Mutual Funds, Personal Finance | 6 comments

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Many years ago, I was terrified of the stock market. I thought it would steal all of your money.

With depression-era parents, the anecdotal information about the stock market crash of 1929 seemed frightening. I believed that you could lose all of your money if you invested in the stock market. I started investing in my 20’s with a traditional stock broker and various versions of bonds and bond funds (and 1 stock recommended by my cousin). 

Over time, study and experience, I learned the basic characteristics of investing in the stock asset class:

  • Stocks are ownership shares of individual companies.
  • They tend to increase in value more than bonds.
  • Most stock values do not go to zero.
  • A diversified stock portfolio from various industries, sizes and geographical locations is likely to outperform bonds and cash.
  • Stocks are volatile, their returns go up and down, but the general stock market trend has been upward.

With education and experience, I became more interested in investing in the stock market and decided to try my hand at individual stock picking. First, I read everything I could get my hands on, including Peter Lynch, Security Analysis by Ben Graham, Investing textbooks and more. I joined the Better Investing.com, and started an investment club. I created a portfolio of stocks, selected on the fundamentals of value investing principles. 

As I became a more accomplished stock picker, I got a position as a portfolio manager of a real estate holding company. I continued to analyze and pick stocks, until I took an investment management class during my MBA at Penn State.

That’s where I learned that most investors fail to outperform the major stock indexes. At that point, after years of tireless annual report, quarterly report, and SEC document study, I decided to become an index fund investor.

I’m still in the process of selling the individual stocks I accumulated over the years (I have 2 left) and have completely transitioned into an investment portfolio of low cost index and exchange traded funds. Freed of the hours of individual stock research I’m content to match the markets. Any additional alpha I got from stock picking was offset by hours and hours of research. While fun at first, over the years, this stock market research became tiresome. 

And that is why I used to invest in stocks, and now I don’t. Oh, and by the way, take a look at historical market  returns.

historical stock and bond returns

Market matching returns look quite impressive! I wouldn’t complain about an average 11.17% stock or 8.45% bond market return since 1980.

Money Articles

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Avoid These Top Ten Tax Mistakes – U.S. News: Smarter Investor Blog, Barbara Friedberg

How do You Define True Wealth? – Bible Money Matters, Miranda Marquit

Investing Articles

20 Best Investing Blogs of 2015 – The College Investor, Robert Farrington (I’m included)

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Vanguard Increases International Allocation to Target Retirement and  Lifestrategy Funds – Oblivious Investor, Michael Piper

What Will My Investment Be Worth at Retirement? Tough Question Made Easy – Life and My Finances

Setting Realistic Investing Expectations – Pragmatic Capitalism 

The Top 10 Economic Indicators to Watch and Why – American Association of Individual Investors (AAII)

 Do I Consider My Pension In My Asset Allocation? – The Canadian Finance Blog

 Three Investing Excuses Holding You Back – Planting Money Seeds

When Does it Make Sense to Dump a Portfolio Loser? – Investopedia, Barbara Friedberg

Click here if you want to solve your investing problems.

Happy Investing!

    6 Comments

  1. Thanks for the mention, Barb! It can often be intimidating to invest, so I’m just working to tear down every barrier possible!

    Derek@LifeAndMyFinances

    March 12, 2015

    • Hi Derek, So many are afraid of investing, but if you learn the basics, the fear is removed.

      Barbara Friedberg

      March 12, 2015

  2. Barbara,

    Index investing is probably the best way to go for the vast majority of investors. Easy and minimal fees. I quite enjoy investing in individual companies/stocks (and all the research that goes with it) and my way of investing works better for me (I’ve done better than the S&P 500 over the last five years with more organic income generation as well), but individual stocks aren’t necessarily best for others. Gotta go with what works for you and your money. 🙂

    Thanks for including me in your roundup!

    Best wishes.

    Dividend Mantra

    March 12, 2015

  3. Hi Dividend, Well put! As long as you enjoy the process and the results, investing in individual stocks can be a lucrative and enjoyable endeavor. It’s nice to know when it stops giving you rewards, there’s always the well regarded index fund approach.

    Barbara Friedberg

    March 12, 2015

  4. What about VZ I picked in your Investing Grad School class at LVC? I believe it was around $27 at the time. With dividends, it is almost doubled! Boo Ya!

    Todd Green

    March 13, 2015

    • Hi Todd, I remember you from LVC. How are you doing? As you can tell from this post, I invest exclusively in Low cost diversified index funds. Best of luck to you.

      Barbara Friedberg

      March 14, 2015

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  1. HOW LONG UNTIL I'M WEALTHY? - […] investments among stock (60%) and bond (40%) mutual or exchange traded funds. The historical average annual return of 60% stock funds…

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