My last blog post about my individual stock picks had an interesting result. More reader comments were received about that post than about any other blog post I have made so far. While I would like to attribute this fact to an increase in readership based on my skills as a finance writer, I suspect the real reason to be far less self-inflating. Most of my blog posts to date have been about long term investing via a portfolio of exchange traded funds due to their reliable returns and lower risk due to the diversification of holdings that make up the ETFs. This is the slow and steady model of investing versus the day-trading model of "playing the market."
Don't get me wrong, playing the market is seductive: the chance of very high returns if you are the one that is lucky enough to pick the next hot stock before it takes off. The problem is...this really is just luck. Even stock picks from pros like Jim Cramer lose money just as much as they make it (I shall not even get started on Jim Cramer, lest my blog stir up a raft of controversy!). I, too, am tempted to join in this world of seductive and sexy market gambling, but each time I consider taking money out of my ETF portfolio to be put into individual stocks, even just a small percentage, I reply to myself that my money would really be better served by increasing my ETF holdings for the long term.
So my last post itself was a great metaphor for investing. Individual stocks are seductive and generate lots of controversy (i.e. more comments and opinions). Long term ETF investing is quite boring, not as controversial (i.e. fewer reader comments), but the chances of success in getting rich in the long term are greatly increased. Far be it from me to tell anyone what to do with his/her money, but the prospect of gambling with my retirement money is not appealing to me. Maybe this post itself will generate more reader controversy (if only due to the Jim Cramer bashing) and someone could change my mind about individual stocks. Like any good philosopher, I'm open to having my view changed based on the presence of adequate reasons to do so. I'm admittedly a little skeptical, but please fire away!
Investment Metaphors by Zachary Fruhling:
Investment Metaphor #16: Pencil Holders
Investment Metaphor #15: Composting
Investment Metaphor #14: Fattoush Salad
Investment Metaphor #13: Small-Ball Baseball
Investment Metaphor #12: Ancient Greek
Investment Metaphor #11: D-Day
Investment Metaphor #10: Trout Fishing
Investment Metaphor #9: Truthiness
Investment Metaphor #8: World of Warcraft
Investment Metaphor #7: Commuters
Investment Metaphor #6: Live 24/7 Webcasting
Investment Metaphor #5: Johann Sebastian Bach
Investment Metaphor #4: Investment Blogging
Investment Metaphor #3: Potatoes Revisited
Investment Metaphor #2: Fractals
Investment Metaphor #1: Cane Toads
5 comments:
I honestly don't know if the chances of getting rich off of ETF funds are higher or lower than individual stocks. I go the fund route myself because I simply don't have the time to consistently devote to the kind of research I think would be necessary to make me become an effective stock-picker.
Yeah, same here. Just not willing to take the chance I guess, given that uncertainty. I am going back and forth a lot on this issue, though. Disciplined investing probably matters more than which style of investing I choose, though. Good personal finance vs. sexy investing.
I've got the funds in my 401K, but that's all they offer in the plan except for company stock. And I'm not one for buying a single stock just because it's there.
I go the individual stock route for the Roth IRA because I have the option to.
I don't think it's necessarily riskier one way or the other (Whether you pick them yourself or have someone else pick them for the fund, the underlying assets are still stocks). It's definitely not gambling if you pick you're own stocks. Plus, you can still be a long term investor doing it.
Look at GE for example. Strong, solid stock with a great history of increasing dividends and earnings. McDonald's too, is someone out there afraid that MacDo is going out of business?
It does take a little time to do the research, but shouldn't you research which funds you're going to invest in as well.
Just my thoughts. Good post.
-limeade
I think individual stocks can be helpful, when mixed with funds. Many times funds are tracking an industry. There are always companies that are doing better than their competitors, and if you're able to locate a company with an advantage over their competitor, it can be useful to buy the stock over the fund. The key is to find a company that, like limeade mentioned, consistently increases dividends and earnings, with strong future prospects. Nice post, and good discussion.
Good thoughts. I like it....
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