Should You Invest in Individual Stocks or Diversify?

Feb 27, 2017 | Blog, Wealth Management

The news is often filled with headlines about one stock price skyrocketing, and how all the signs pointed to its “surefire” success.

When hearing about a stock’s recent high performance, it’s only natural to wonder what could have happened if you had invested in it heavily, and you might even be tempted to invest in individual stocks.

While it might be entertaining to think about possible outcomes from making a concentrated investment, actively trying to predict the future is entirely other matter.

The possible dangers of investing in individual stocks

Although the returns can be fantastic if you choose a winning investment, the data shows that more often than not, you’ll extremely disappointed by investing in individual stocks. The truth of the matter is that trying to pick an individual stock is more akin to gambling than it is smart investing.

No one – not even the “experts” in the media – can predict with 100 percent certainty if a stock is going to go up and down in the near future. In fact, the data shows that the majority of investors underperform relative to the stock market for this very reason.

Using diversification as an alternative to investing in individual stocks

Diversification has been dubbed the only “free lunch” in investing for a good reason: when used correctly, it can increase your returns while also reducing your risk. Rather than investing in individual stocks, diversification involves investing your wealth across multiple investment vehicles.

Diversification can be a successful investment strategy because over the long-term, the stock market trends upwards. Over a long enough time frame, the stock market has always increased in value and reached an all-new high. While it’s true that you might

Perhaps even more importantly, diversification can drastically reduce the risk of one of your investments failing. If you’re investing in individual stocks, a bankruptcy of one firm you’re invested in could be financially devastating, while it might be barely noticeable in a well-diversified portfolio.

Learn about more about diversifying vs. investing in individual stocks

At LexION Capital, we help our clients create bespoke, well-diversified portfolios. As a client, your wealth can be diversified through a wide selection of fixed income investments, hard assets and equities. We also diversify assets based on size and style, and will scour the world for the best international investments.

If you’d like to learn more about our unique approach to diversification, contact us today to start a conversation.

Share This