Index investing vs individual stocks investingI picked on random a popular US pharma stock , J&J which was in the news recently for being fined 9.8 billion dollars and compare it with the US stock index , SPX 500 over a rough 20 years period.
So, say you are 30 years old back then and you put the same amount of money, $10,000 into each of these assets.
20 years later, the stock you bought, J&J would yield you an estimate of 250% growth , that is from 10,000 it becomes 25,000. This of course excludes dividends income to simplify things.
On the other hand, your 10,000 in the index, SPX500 would yield you 430% returns or from 10,000 to 43,000. This is an additional gain of 18,000 more than if you had picked up individual stock on your own.
Of course, there are plenty of stocks that could yield you triple to quadruple digit returns over the same time frame which I did not cover here. My point is picking up individual stocks would require more research and homework on your own, understanding the industry, company's financial performance, economic moat, projection into the future, etc. Would anyone have thought a 163 years old bank like Credit Suisse would suffer its fate today ? I seriously doubt so.....
There is a great margin of safety in investing in the index as it is a basket of stocks and those that fails to meet its requirements would be replaced by another company. And that takes the load off your mind to do the due diligence.
It all depends on your capital, risk appetite , personality, objectives of investing, time frame, etc in deciding which asset class to go to. Some prefer stability and peaceful night sleep and less hassle while others enjoy the roller coaster ride and adrenaline rush of seeing the stock performed better than the index. To each his own, no right or wrong, really.
You can also place half your capital, 5000 into the stock and 5000 into the index. That will give you a total return of 30,500 which is very good too.
I wish you all the best in your investing journey. Enjoy the ride!
