Some of my blog readers are die-hard individual stock investors. Their argument is simple, ” I own 30 stocks in Malaysia, Singapore, and the States, I am diversified enough! Why shouldn’t I buy individual stock?”
You can’t pick winning stock always!
Picking a winning stock is possible occasionally but almost impossible all the time! I couldn’t pick winning stocks and I bet you too! Trying to invest in individual stocks is destined to fail in the long term!
Looking at friends making a profit of 50% in one individual stock within 3 months is certainly tempting! Investors generally have this FOMO mentality that they have to act like others.
Herd mentality makes inexperienced investors follow news they listen in TV, a stock rumor they overhear from co-workers, or even a dream they have the night before.
I won’t sell during the bear market
It is easier said than done that you won’t sell your stocks during a market crash. If you have gone through market crashes before, you know how the feeling was.
By looking at my Singapore REITs portfolio drops 35% in value in March 2020, I was having sleepless nights and nightmares. And as painful as it is, you are now hearing from financial news around that the Singapore REITs index might drop another 30%.
That’s the feeling you have to go through during market sell down. If you think you are not ready for it, turn around and walk away. From the very first day you invest in the stock market, you must have the correct mindset to prepare for this kind of worst-case scenario.
You have to buy not sell during bear market
When the market crashes, selling is not an option. In fact, you should be buying more. The problem as an individual stock investor with 30-40 stocks in the portfolio, which stock you need to buy more?
Owning 30-40 stocks sounds like a good plan! But 29 out of 30 stocks you own have dropped an average 20-50% recently, how do you deploy your cash reserve to buy all these stocks more?
Are you going to divide your cash equally and buy each dropping stock in equal cash value or according to some special formulas?
Or you should avoid buying 1-2 stocks anymore in your portfolio because some analysts opine that these two companies might go under?
Who would have predicted Hertz price to drop from USD100 to less than USD 2.5 back in 2014?
The simple path to wealth
The simple path to wealth for me is owning 2 to 3 broad-based ETFs/index funds with bonds. There are only three portfolios I hold in my USD portfolio- VUSD, VWRD, and VDTY.
Whether the market is up and down, I only need to look at these three ETFs and keep on buying according to my desired asset allocation.
When I put in USD10,000 to buy VUSD, I am basically buying all the 507 companies with ease ( just 2 computer clicks) at a very low expense cost. Imagine the hassles for you to buy 30 stocks at once!
You might think that I only own three ETFs and not diversified enough, by buying these three ETFs, I actually own a fraction of more than 3900 companies in more than 50 countries!
You are not diversified enough even owning 100 stocks
Owning 100 stocks in 3 major markets does not put you in a better position than those who have 30 stocks. For me, buying the whole market by investing in broad-based ETFs/index funds is an easy way out.
No one can pick the winning stock always nor timing the market direction. The simple path to wealth for everyone will be getting rich slowly and surely by putting money in broad-based ETFs and index funds.
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