Great job mastering risk tolerance! Now comes a practical decision every investor faces: should you buy individual stocks or index funds?
Remember from our diversification lesson how one S&P 500 fund gives you 500 companies instantly? Let's explore this choice deeper.
Engagement Message
Right now, which path feels more suited to you—selecting individual stocks or owning an index fund?
Index funds are like investment shortcuts. Instead of researching and buying individual companies like Apple, Microsoft, and Tesla separately, you buy one fund that owns all of them.
It's like buying a pre-made fruit salad instead of selecting each fruit individually at the store.
Engagement Message
Which sounds simpler: researching 500 companies or buying one fund?
Here's why index funds are powerful: they automatically give you diversification we discussed earlier. One fund might own hundreds or thousands of companies across different industries.
Plus, index funds typically charge very low fees - often just 0.03% to 0.10% per year of your investment.
Engagement Message
Why do you think low fees matter for long-term investing?
Individual stock picking means you research and choose specific companies to invest in. You might buy shares of Amazon because you think online shopping will keep growing.
This requires studying company financial reports, understanding their business model, and tracking industry trends.
Engagement Message
Does researching individual companies sound interesting or overwhelming to you?
Here's the challenge with stock picking: even professional fund managers who do this full-time struggle to beat index funds consistently.
Studies show that about 80-90% of actively managed funds underperform simple index funds over 10+ year periods.
Engagement Message
If professionals struggle with stock picking, what does that suggest for individual investors?
