Financial Education  Investing In Individual Stocks
Guides Stock Market Investing
Investing In Individual Stocks
TABLE OF CONTENTS
Stock Price Volatility
Blue Chip Stocks
High Volatility Stocks
Risk Tolerance
Should You Invest In Individual Stocks or Index Funds?
How Much Money Do I Need To Start Investing?

Investing In Individual Stocks

Erik Machuca Erik Machuca
Jan 7, 2024
Investing in index funds is a recommended starting point for most new investors. You get exposure to investing in hundreds of major companies, you don’t have to stress about picking individual stocks, and it can help manage your overall investment risk.
Again, most new investors should start by simply investing in index funds.
But this is not to deter you from investing in individual stocks. You absolutely can. In fact, even Warren Buffet himself invests in individual stocks.
When it comes to investing in individual stocks there are a couple of important factors to keep in mind.

Stock Price Volatility

Price volatility is the degree to which a stock’s price fluctuates. Individual stocks are much more volatile than the overall stock market (i.e., index funds and ETFs). This means that you can expect more drastic fluctuations in prices of individual stocks, as opposed to price fluctuations of ETFs.
A simple method to compare the volatility of stocks is to look at each stock’s beta. A stock with a beta greater than 1 means this stock is more volatile than the overall stock market.
However, a stock with a beta below 1 means this stock is less volatile than the overall stock market. If you are interested in investing in individual stocks as a new investor, and want to reduce the volatility of your investments, you may want to consider investing in stocks with a beta under 1.

Blue Chip Stocks

When it comes to investing in individual stocks, it is important to keep in mind that some stocks are more volatile than others.
For instance, an up-and-coming technology stock, such as Tesla, is going to experience much more fluctuation in it’s stock price than blue chip stocks like Apple, Johnson & Johnson, Coca-Cola, and American Express.
Blue chip stocks are reputable, reliable, and quality companies that have stood the test of time.
While blue chip stocks may not experience as much growth as young up-and-coming companies still in their infancy, they can provide investors with sustainable growth and a lot less volatility along the way.
If you are a new investor interested in investing in individual stocks, you may want to consider investing in blue chips stocks. Many blue chip stocks can be found in indexes such as the Dow Jones Industrial Average and the S&P 500 Index.
Some of the best investment platforms to invest in blue chip companies are M1 Finance, Public, and Stash.

High Volatility Stocks

On the other hand, high volatility stocks can be ideal for more active stock traders. This increased volatility creates more opportunities to buy low and sell high.
Personally, I am a long term investor myself, and not much of an active stock trader. But if you are interested in trading stocks it is highly recommended to practice first on a stock trading simulator before trading with your real funds.
One of the best platforms for new stock traders to practice trading with is the Webull stock trading app. Not only is Webull a 100% commission-free trading platform, but they also offer an easy-to-use stock trading simulator directly inside the app.
But again, on the other end of the spectrum, if you want to get started in the stock market without having to pick individual stocks and build a portfolio from scratch, you may want to consider one of the best robo-advisors, such as the Acorns investing app.
Acorns simplifies your portfolio, by letting you choose from pre-built and diversified portfolios composed of some of the top ETFs. They even offer several investing automation features, such as automatically investing the spare change from your everyday purchases.

Risk Tolerance

Before you jump into investing in individual stocks, it’s important to establish your risk tolerance based on your financial goals. Knowing your risk tolerance will help you with risk management.
What type of investor do you want to be? This is an important question to ask when you begin investing in the stock market.
  • Do you want to invest in aggressive growth stocks with more growth potential?
    • Do you have a higher level of risk-tolerance and a longer investment horizon?
  • Or, do you want to invest in reliable blue chip stocks that pay consistent dividends?
    • Do you have a lower level risk-tolerance and a shorter investment horizon?
  • Or perhaps, you want a compromise, and invest in stocks that pay dividends while simultaneously having growth potential?
And don’t worry, we'll discuss what dividends are and how they work in the next section.
Knowing what type of investor you want to be will go a long way in helping you determine what types of companies you want to invest in.
For instance, a more conservative investor would build their portfolio around more established companies with a proven track record.
On the other hand, a growth investor may compose their portfolio a bit more aggressively, with more innovative up-and-coming companies.
Of course, if building your own portfolio from scratch is too overwhelming, you can just as easily participate in the stock market by simply investing index funds and ETFs.
Two of the best platforms to invest in index funds are M1 Finance and Acorns.

Should You Invest In Individual Stocks or Index Funds?

This answer will vary from person to person. Again, if you are just getting started investing in the stock market I would recommend starting with index funds and ETFs.
This will give you time to get comfortable with the stock market, and it's ups and downs, before immediately jumping into individual stocks.
In deciding which investment vehicle is right for you, here are a couple of the questions you will want to ask yourself:
  1. What is my risk tolerance?
  1. For how long am I investing?
  1. Am I willing to put in the research to keep up with individual stocks?
It's also worth noting that this doesn't have to be an all-or-nothing decision. You don't have to completely choose one or the other. You can invest part of your portfolio into ETFs and part of your portfolio in individual stocks.
You can also have multiple investing accounts on separate investment platforms. This can help you avoid mixing-up investing strategies, as each account can have it's own objectives.
  • For instance, you may have an individual retirement account (IRA) largely invested in index funds for peace of mind for the long run.
  • Meanwhile, you may have a non-retirement investing account where you invest a little more aggressively by holding individual stocks.

How Much Money Do I Need To Start Investing?

When you’re just getting started, you may wonder if you can actually afford to invest in the stock market. For decades, access to the stock market was limited to only wealthy investors.
The stock market is now much more accessible to the everyday investor. With advances in technology and the growing number of Fintech (financial tech) companies on the rise, anyone can start investing in real companies.
You no longer need hundreds or thousands of dollars to start investing. Today, there are beginner-friendly investing apps that let you get started investing in with as little as $5.
And we’ll be discussing some of the best investment platforms for new investors a little later in the course.
Now, in the next video, we’re going to dive into my 4-Step checklist for finding quality stocks to invest in. So, I’ll see I’ll see you in the next video!
Erik Machuca
Erik Machuca
Erik Machuca is the founder of EverydayInvesting.com. He is passionate about helping everyday investors simplify investing with technology.

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