When it comes to investing in stocks, people often go into two separate paths.
The first type of people would buy individual stocks.
This would mean buying separate securities.
What is the rationale behind this action? People would think they are smarter or luckier than the rest.
This is the driving logic that most people have when buying individual securities.
If you do invest in individual stocks, you may be losing out to those full-time, professional and experienced fund managers, not to mention missing out on the index funds too.
Many times, the way people invest depend on their personalities.
The most important quality is patience.
Patience alone can determine whether a person will succeed or not, especially in the long term.
Typically, males have the problem of not admitting their mistakes.
They would rather choose individual securities themselves.
Actually, there are several disadvantages when doing so.
The following list explains why: More time is put into research When you buy individual securities, you have to ask yourself whether you know everything about the company or not.
You should know things like products they are selling, growth and profitability of the company, how much debt the company has, and so on.
Unless you know these basic entities, you are better off not investing into a specific company.
Most of the time, research and doing your homework takes time.
In financial aspects, time is money.
You could be using the time for other profitable activities.
Sometimes, research even costs money.
Many people are convinced that picking an individual company to buy stocks from is easy.
It is not.
Emotions will be your enemy Let us assume you have done your research and all the relevant tasks in analyzing a company.
What next? You have to take action! But what happens when the stock drops significantly during a short period of time? Most people, in this case would not hold on to it.
They would panic and then sell the stock off immediately! This is where emotions play a big role in investing.
Follow your logic and you will always prevail.
Investing in individual securities will cause you to diversify less The problem is that managing a diversified portfolio takes cost and time.
Chances are, the task of managing a portfolio is better handled by a professional money manager.
Keeping your own hands busy managing will keep you from investing in other stocks in different industries.
This will lead to less diversification and leads to higher risks.
Accounting and bookkeeping You will face the stress of management again.
When you sell or buy something, you must report that particular transaction for tax returns.
The first type of people would buy individual stocks.
This would mean buying separate securities.
What is the rationale behind this action? People would think they are smarter or luckier than the rest.
This is the driving logic that most people have when buying individual securities.
If you do invest in individual stocks, you may be losing out to those full-time, professional and experienced fund managers, not to mention missing out on the index funds too.
Many times, the way people invest depend on their personalities.
The most important quality is patience.
Patience alone can determine whether a person will succeed or not, especially in the long term.
Typically, males have the problem of not admitting their mistakes.
They would rather choose individual securities themselves.
Actually, there are several disadvantages when doing so.
The following list explains why: More time is put into research When you buy individual securities, you have to ask yourself whether you know everything about the company or not.
You should know things like products they are selling, growth and profitability of the company, how much debt the company has, and so on.
Unless you know these basic entities, you are better off not investing into a specific company.
Most of the time, research and doing your homework takes time.
In financial aspects, time is money.
You could be using the time for other profitable activities.
Sometimes, research even costs money.
Many people are convinced that picking an individual company to buy stocks from is easy.
It is not.
Emotions will be your enemy Let us assume you have done your research and all the relevant tasks in analyzing a company.
What next? You have to take action! But what happens when the stock drops significantly during a short period of time? Most people, in this case would not hold on to it.
They would panic and then sell the stock off immediately! This is where emotions play a big role in investing.
Follow your logic and you will always prevail.
Investing in individual securities will cause you to diversify less The problem is that managing a diversified portfolio takes cost and time.
Chances are, the task of managing a portfolio is better handled by a professional money manager.
Keeping your own hands busy managing will keep you from investing in other stocks in different industries.
This will lead to less diversification and leads to higher risks.
Accounting and bookkeeping You will face the stress of management again.
When you sell or buy something, you must report that particular transaction for tax returns.
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