Stock Picking Risks: A Prudent Investment Approach

Investing a significant percentage of money that you hope to use for something important — maybe a down payment on a house, your kid’s college education, or your retirement — in a few stocks is a scheme that no sane investment advisor would ever recommend.

It’s a lot like gambling in Las Vegas — sure, you’ll hear stories about some friend of a friend who put all his chips on Apple twenty years ago and now owns an island in the Caribbean. But for every filthy-rich-on-Apple guy there are hundreds of investors who crapped out betting big on Yahoo, Nokia, or Enron. Even the most famous stock picker in the world, Warren Buffett, has said that when he dies, he will advocate that his heirs invest exclusively in low-fee index funds or ETFs in order to have broad exposure to the entire stock market — and not be overexposed to any one equity.

At Wealthsimple, we’re all about following Uncle Warren’s wise counsel on financial matters, and that’s why we too suggest a risk-appropriate mix of ETFs rather than individual stocks. We’re not scolds who would discourage our friends from trying to strike oil on the sexy new tech stock or clean tech startup. We just advise that any amount of money that you invest in individual stocks should be an amount that you easily can afford to lose.