Many of us have probably had that moment in our investing lives, where something piques our interest, and we wonder if maybe we should just take the risk and buy stock in a company we believe will do well in the future.
3rd Decade’s message is clear at this point: invest in low-cost index funds, and hold them for a significant period of time (30+ years). But since we all get curious, we wanted to address the question, “When is it okay to buy single stocks?”.
A good way to look at funds within your budget for purchasing single stocks is as discretionary gambling money. Remember, single stocks should not be part of your retirement plan. If all goes well, sure, maybe you’d have some cash to show for it! But the long-term research on single stock performance is just too unpredictable to count on for retirement. We’re not telling you to never buy single stocks, we’re just telling you not to put your finances towards them if you’re not already meeting all of your other goals. The reason we look at it this way is that buying single stocks is a game of chance; there’s always the potential to lose it all.
The next time you’re tempted to buy stock in a company, just ask yourself these questions:
“Are my normal bills/expenses already covered?”
“Is my retirement being funded as I hoped and planned for?”
“Would it be devastating if I had nothing to show for this investment?”
If your answers were “yes”, “yes”, and “no”, then rest assured that it’s perfectly acceptable to use your discretionary funds as you please.