3) Investing for fun:
Maybe you have your needs taken care of and you just want to invest for fun. Starting in your 50s, that would be the main reason to invest in individual stocks, as opposed to mutual funds. As I describe in my book, The SmallIvy Book of Investing, here you’ll want to choose a small number of stocks and build up large positions in them over time. You’ll want to gather positions of 500-1000 shares over a period of years. Choose what you consider to be the best companies in different industries with a lot of room for growth that are making profits consistently and growing their business each year.
Once you have acquired a position, plan to hold for several years. It often takes time for a company’s stock to appreciate. When it does, it often occurs over a short period of time, a few months or even a few weeks. Plan to hold onto your investments unless 1) you need the money, 2) you no longer believe the company has good growth prospects, or 3) the position becomes so large that a substantial loss would greatly affect your life.
Learning to pick stocks is an acquired skill that takes practice. Expect to have some stocks that decline or perhaps just don’t grow as fast as the markets. You may find that you would have been better off just buying mutual funds (which is why you should use mutual funds for your critical investing). If you can pick a few great companies, however, you can outperform the markets and make some very substantial gains through individual stock investing.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.