Is Owning Individual Stocks A Loser’s Game?

A recent article titled "Owning Individual Stocks: A Loser's Game" by Larry Swedroe, one of my favorite financial writers and researchers, says YES.  Larry is the author of 18 books on investing and frequent blogger. His advice is used by millions of investors and advisors alike.  

The Power of Diversification

In the article, Larry reinforces an important principle that we emphasize in our investment management approach here at Perkins Wealth Advantage: the power of diversification.

The article highlights research showing that the vast majority of individual stocks underperform, with only a small fraction driving the market's long-term gains. In fact, less than 4% of all publicly traded stocks since 1926 account for all the wealth creation in the market, while the rest yield returns similar to risk-free investments like Treasury bills. The majority of the stocks (51.6%) had negative cumulative returns, meaning they destroy value. The median return of all stocks was -7.41% annually. (That’s a huge number!) This underscores the significant risk of focusing on individual stocks, where most investors overestimate their ability to pick winners and often end up holding losers.

Diversification offers a smarter path. By spreading investments across a broad, low-cost, evidenced-based portfolio, we can reduce the risks associated with individual stocks while still capturing market returns. This strategy mitigates the risk of significant losses from a few bad picks and provides a more consistent path to building wealth over time.

If you'd like to read more, I encourage you to check out the full article here: Owning Individual Stocks: A Loser's Game.

Or if you want a refresher on how we think about the markets, check out our blog posts here: Our Investment Philosophy Is Rooted in Academic Research.

As always, I'm here to ensure you are appropriately invested to accomplish your financial and life goals.