Investing in Single Stocks – Why I Don’t Do It?

Investing In Stocks Is Easy But I Haven’t Done It

Investing in stocks is no longer ONLY for the wealthy. Most people can now sign up for a free stock trade account and begin investing today for a small fee at one of the best online stock brokers (i.e. $4 at Sharebuilder.com with automatic investing). I checked with Sharebuilder.com and found that they have over 65,000 stocks you can buy priced less than $5. I hear a lot of chatter at work like “oh, my shares of x are way down” or “time to get into some stock of x”. Is it all just hype or do these people really own individual shares? Why?

Even though it’s become very easy to invest in them, I currently do not have ownership in an individual stock. In fact, I’ve never purchased one. I do, however, own shares of mutual funds and index funds which in turn own shares in individual stocks. For instance, I own .54 shares of S&P 500 INDEX SPDR, which owns shares of GE, Microsoft, and all the other S&P 500 stocks.

Also, the company I work for gave me stock options, of which 25% I will be vested in come March 2008. So, at that point I have the option to own individual stock in my company. Of course, because of the way stock options work, I’ll only own them for a second, before they are sold, and the cash put in my pocket.

Why I Don’t Plan On Single Stock Investing?

OK, so what do I have against single stocks? The reason I don’t own them is because:

1. I have other things I want to do with my money first. Some of the things that I rank ahead of purchasing single stocks:

  • Completely fund our emergency spending account, which is held at Capital One 360. Right now it’s at the two month’s salary mark. I’d like it to be funded closer to the three month level.
  • Paying off our bad debt as well as our student loans. We’re close to paying off our bad debt, but the student loans would require some extra work and are well below 5% interest. Still, I think going after them prior to individual stocks is the right choice.
  • Contribute enough pre-tax money to my 401K and Mrs. PT’s 403B (both of which are in diversified mutual funds) to get the entire company match. We will do this in 2008.
  • Max out our allowable annual contributions to these pre-tax funds. We will also do this in 2008.
  • Max out our available IRA (invested in mutual funds) contributions. I don’t know if we’ll get this far or if we’ll be eligible, but it’s definitely a stretch goal for us.
  • Saving for a couple of nice vacations.
  • Giving more money away.

2. Even if I were to complete all the above and had money to spare I simply don’t think single stocks are necessary for my retirement portfolio to do well. We’ve got it covered when it comes to retirement savings by focusing on a heavily diversified portfolio. By this I mean, we’ve got our money in mutual funds that spread our money out over many stocks in many different markets. We’re earning solid returns without the risk that comes with singles stocks.

3. I don’t know enough. Investing in a single company with a lot of your money requires that you (a) know a lot about that company or (b) like gambling. Although, in my opinion, know matter how much you think you know, it’s still kind of like gambling to put all your eggs in one basket. I just don’t know enough about a single company to make it doable.

Final Thoughts

The bottom line is: Single stocks just aren’t a part of my personal financial future. It would take some serious play money to even begin thinking about doing it. Consider the measly $75 I have in Sharebuilder. That’s not even in stocks, it’s in an index fund (the S&P 500 Fund). I ask the question, why invest in single stocks when mutual funds are available?

If you have a strong case for mixing in some single stock investing, let me know in the comments below.

Last Edited: March 12, 2013 @ 7:25 pmThe content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Philip Taylor

Philip Taylor, aka "PT", is a CPA, financial writer, FinCon CEO, and husband and father of three. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.

Comments

  1. I enjoy investing in individual stocks. I have your no. 1 covered. I have over a years expenses in money market accounts and I have money saved for our vacations later this year to Colorado and Palm Springs.

    The reason I invest in individual stocks is to build up a portfolio of dividend stocks to pay me an income in retirement that will increase at a rate greater than inflation. I only spend a few minutes a day reading any news on my stocks. It is not that had to select stocks if you have a process for selecting stocks. Best of luck.

  2. @The Div Guy – Great comment. Congrats on being in such a solid position. Sweet vacation choices.

    I guess I just don’t know enough about investing for dividends. I plan to check out your blog to find out more, but can you tell me some basics: how many you have? what % of your assets are in these stocks? why this is better than mutual fund returns?

  3. I am not saying stock investing is for everyone but it can be fun for someone willing to do a little reseach. First, I would say you need to work on your goals from your step 1. I have a little over $100K in dividend stocks and currently own 27 stocks. My top ten holdins are KMP, ACAS, DSX, PWE, BCS, HRP, PG, AYR, XOM and SFI. I am looking for my stocks to return 8% or better including the dividend income.

    You can look at a number of sources for stock information such as Value Line, Morningstar and Standard & Poors. Most are available at your local library for free. A very good book on dividend investing is The Single Best Investment by Lowell Miller.

    I also have about $400K that is mostly in index funds with Vangaurd.

  4. I echo The Div Guy’s sentiments. Investing in individual stocks is more risky. If you are not comfortable doing it, then you shouldn’t feel like you have to. you can be successful not doing it. As for me, I enjoy the challenge. Here a post detailing why I do it:

    http://dividends4life.blogspot.com/2007/11/is-your-portfolio-average.html