You Should NOT Be Choosing Stocks
Updated: Jan 9, 2022
I hurts me to my core to hear people talk about how much stock they own in the company that they work for. It's not that having stock in your own company is a bad thing, but it takes me down a rabbit hole of wondering how much stock they have in one company, how many other stocks the person may have, what types of companies a person in invested in and on and on. I won't suggest particular individual stocks for investments. At least not at first. There are levels to this and choosing stock is like jumping in at the wrong end of the pool. The easiest way to begin investing is to start with mutual funds that have low expense ratios and that have a time frame that lines up with your goal time frame. I want to be explicit here, so here we go:
Stocks - a financial instrument (like a check, or a dollar bill), that represents ownership in a company. Stocks can be bought and sold, based on the perceived value of the company.
Mutual fund - is a group of stocks bundled together, selected by a professional stock picker. The fund can be purchased in shares, like stock, but instead of owning one stock, you’d own one share of the fund and the fund share represents ownership in multiple stocks. (This is an extremely simplified explanation of mutual funds here is the the technical definition).
Expense ratio - fees associated with buying and selling mutual funds.
Portfolio - a collection of stocks, bonds, commodities, cash, and cash equivalents, etc. Holistically though, your portfolio consists of all of your assets and investments, and could include property, annuities and other instruments that you intend to use to create wealth.
I don’t recommend individual stocks because I don’t think the average investor (and I’m the average investor) has the time, interest, or desire to choose individual stocks that will lead to a balanced, varied portfolio. Variation based on strategy and investment time frame is called diversification and whether you’re new to this, or have been in it for years, it’s not easy to master using individual stocks. So, while I have a few stocks lying around (and I give them as gifts), I focus on mutual funds for actual investment strategy. And if you run across someone who encourages you to buy individual stocks as your total investment strategy, you might want to give them the side eye. While you may have individual stocks, it’s unlikely that that would be a long term, diversified strategy for any of us.
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