Question: Is buying individual stocks terribly unwise for individual investors?
The more I learn the more I agree with the experts that individuals shouldn't invest in stocks.
Transaction fees eat away at your gains.
It complicates your taxes.
You have to do a long financial analysis on every stock you hope to buy.
Because of fees and analysis, you'd have to risk thousands of dollars in a few stocks to make any money.
I know the brokers want you to use their advice so they can charge you a fee for it, but they're right that index funds and mutual funds are the way to go.
Answer:
choose an adviser who will refund his fees if he loses any of your money .
Generally for most people yes, buying directly is not the best course. The problem is when the markets have a down period, people decide that they must be smarter then the fund managers. (Who are trained and experienced). and randomly buy the stocks (usually of brand names that they know of). expecting a good return, they often end up doing worse then the funds did.
There is also the few people who trade markets, (although many of them lose too). who make great returns. Key to this is much learning and practise (Years, Like a Degree). before you even think of living off your investments.
Individual stocks are for people with a lot of time on their hands.
Using a Financial Adviser or Broker is a bit expensive. Best thing
for most people is to invest in no-load mutual funds.The fund
manager does all the picking aided by a team of helpers who can
screen individual stocks or bonds for the fund. Most mutual funds
are diversified into many areas of the stock market. You can deal
directly with most mutual funds such as Vanguard, Fidelity and
American Century. A representative will help you get started at
no cost.
Well, most regular folks have neither the time or inclination to do the research on individual stocks, so they hand this task over to fund managers for a fee - the 12B-1 and other fees.
And that is perfectly all right. Nothing wrong at all with that approach.
For others, who have the interest, motivation and time to undertake such research, individual stocks can return more than funds.
As with everything, it's a question of YMMV - Your Mileage May Vary.
I totally agree with you picking up stocks are difficult and time consuming, it is cheaper and more efficient to do index investing . Furthermore if you want to create a proper diversified investment portfolio, you should own at lest 20 stocks.
If you still want to pick up some stocks, you can still create a core-satellite portfolio with some index ETF and Mutual fund index as core, and pick up some selected stocks in order to try to enhance your portfolio.
Regarding Index investing, I've just finished index investing for dummies and I must say this book is quite good.