What are Individual Stocks? 

Individual stocks, unlike an ETF or Mutual Fund, require more attention, but offer the opportunity for greater rewards.

Most people don’t think very much about individual stocks. Financial pundits talk about the market as a whole. We look at our 401k to see if it’s gone up (or down), and if there’s some big IPO, you’ll hear about it for a while, then the excitement will die down. 

That makes sense, largely because most 401k plans are tied to the major indexes like the Dow or Nasdaq through ETFs or mutual funds. You can think of ETFs and mutual funds as baskets full of different stocks. Many will have a bundle of stocks that are weighted similarly to a major index, which is why your 401k goes up and down with the market.

By contrast, individual stocks are stocks in… you guessed it: individual companies. They might be major blue-chip corporations or micro-cap startups. Some of them may very well be included in your ETF, but they’re also available on the market to any investor. So rather than have an ETF which might include Stocks A-Z, an investor could just buy shares of Stocks A, D, K, L, and Y. 

There are, of course, pros and cons to investing in individual stocks. Because ETFs and mutual funds have so many stocks in them, there’s less risk that you will lose a lot of money if one or two of those stocks really sink. On the other hand, if one of your five or six stocks drops by 20%, you could potentially lose a large sum. 

The inverse is true, too. A large gain in a few stocks won’t make a huge difference when your investments are divided up in an ETF, whereas a 30% gain in one stock out of five or six can substantially boost your portfolio. 

Investing in individual stocks is fun and rewarding, but you do have to pay attention to what’s going on. If you’d rather “set it and forget it,” you may be better off with ETFs.

To learn more about stocks and investing, download our FREE report, How to Invest in Stocks and Other Investing Basics, today. You’ll learn about the four types of stocks, what it takes to be a successful investor, and you’ll discover five reasons you should skip the broker and invest on your own.