I've gotten many messages over the past few months from people asking to look at their porfolio. Usually when I see a portfolio I see many individual stocks making up a large % of a porflio, my first response is always to buy low cost index funds. I dont want to come off harsh but I feel the definition of investor arrogance is believing you're smarter than the market. Believing you can consistently pick winning stocks while outperforming millions of other investors including professionals with teams of analysts and access to far more information than you. The data says otherwise. • Around 80–90% of actively managed U.S. equity funds underperform the S&P 500 over a 15-year period. • These funds are run by professionals with teams of analysts, company access, and institutional research, yet most still fail to outperform a simple index fund. One thing you'll notice on social media: people love posting their biggest stock winners. Far fewer people post the stocks they lost 50%, 80%, or even 100% on. There's a reason why mutual funds and actively managed funds have historically underperformed against index funds..because even well paid fund managers with their teams cant beat the market overtime. For the record, I still own some individual stocks. My portfolio is roughly 93% ETFs and 7% individual stocks. I enjoy researching companies, but I also recognize the odds are stacked against consistently beating the market. That's why the foundation of my portfolio is broad-market ETFs not stock picks.
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44 Comments
Eze @eze1234 · 1mo
lol brave post. The challenge is, beating the market short term gives people the belief they can maintain that for 15 years. It is quite deceptive.
Kyle Garrett@kgcottawa · 1moEdited
As someone who invests in individual stocks, I still completely agree. I own numerous individual stocks, for a few reasons, however $XEQT is the majority of my RESP, and 20% of my SmothManouvre account. I use individual stocks because I think they will out perform, true, however I also want to highlight a few additional reasons I like them; - tax efficiency. My wife and I are both high income earners, our tax rate is high, and CAD eligible divs are a nice way for the portfolio to deliver cash (if we want it) - diversification! I know this seems silly, because XEQT is so diversified, but it’s not always where I want it. and a bonus reason- XEQT and all broad indexes must hold companies that are objectively trash, holding them as they slide out of the index they’re in but losing value the whole way out. I hate that I need the whole basket of stocks, and individual holdings help soothe that part of me. Aka “If I’m forced to hold stocks I don’t like, I can balance it by holding more of the stocks I do like” Thanks for attending my Ted talk 😊
Gerald @aetos · 1mo
Also realize just because you're uncomfortable with risk does not mean individual stocks are the enemy. My individual stocks surpass my index fund 100x. They take more focus, but they should not be feared.
Kevin J@mid_aged_newbie · 1mo
I recently sold off the last two single stock positions I had and used that money to start an XEQT position as that will most likely be far better in the long term
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