If Index Funds are so good why does everyone not invest in them but individual stocks?
In: Other
Individual stocks can go way up or way down. You can 10x your invested money in a year, or you can lose it all. And they drop to 0 more often than they go up 10x in a year. But the potential for HUGE gains is there, and that’s what keeps people buying them.
Index funds are way safer. They’re a tradeoff with much less risk but much less reward. Steady growth of 5-15% per year over a 10 year span is the appeal of index funds – but notice that +1000% in a year is not going to happen (or even +50 or 100%).
It can be smart to have some of both. That way you have a chance for the huge gains of a good stock pick, but you also have much closer to guaranteed income from the index funds to cover any losses. And there will be some losses when you’re picking individual stocks.
But individual stocks have that lottery-ish “maybe-you’ll-100x-your-money” allure so they’re “sexier” than index funds.
Latest Answers