"Why Young Investors Shouldn't Dabble in Stocks"

[Taylor Larimore]

Bogleheads:

Morningstar, the leading company for mutual fund information, has an excellent article featuring Christine Benz, Morningstar Director of Personal Finance and a Boglehead supporter. These are excerpts:

"some of the apps like Robin Hood have done a good job of kind of gamifying investing in the market. So they've made it fun, they've made it playful."

"if they can invest in a diversified broad basket of equities, that probably gives them a better runway to earn good long-term returns over their very long time horizon. So my advice would be to skip the individual stock investing and move straight to a broad basket, maybe an index fund or a target-date fund."

"And I think it's also important to talk to young folks who have a salary about the virtue of using some tax-sheltered investment vehicle to do their saving."

"So I think if you have someone near and dear to you, explain to them the virtue of making sure that you have those short-term reserves on hand."

"Bogleheads is a fantastic resource for investors of all ages. I would also recommend a couple of books. I love the “Bogleheads Guide to Investing.”

"Well, it's interesting because at Morningstar we're big advocates of getting started early and letting compounding work for you. But day trading is probably not the way to do it."

"it reminds me, Susan, of so much of the early 2000s/late-1990s period, where everyone had to have a brokerage account and many investors had predictably awful results because they were just performance chasing. -- So I think starting broadly diversified makes a world of sense for a young investor."

Why Young Investors Shouldn't Dabble In Stocks

Best wishes.
Taylor

Jack Bogle's Words of Wisdom:

"If you're not investing, now is the time to start. The best single thing that can happen to young investors who are accumulating money is a major and sustained market decline."

[FIREchief]

That's kind of confusing. The title suggested (at least to me) that young investors shouldn't own stocks. Apparently that's not what "shouldn't dabble" means.

[arcticpineapplecorp.]

Taylor, I'm surprised you didn't post this part :

Benz: Great question, Susan. And so one thing I would say is help them graduate from Reddit, where a lot of younger investors seem to be getting their information. Morningstar.com obviously I think is a fantastic resource. Bogleheads is a fantastic resource for investors of all ages. I would also recommend a couple of books. I love the “Bogleheads Guide to Investing.” It's not new, but I think there's a lot of great evergreen information there.

source: https://www.morningstar.com/articles/99 ... -in-stocks

[000]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

[Taylor Larimore]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

000:

Interesting. Can you provide evidence for your statement?

Thank you and best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

[CardioMD]

I take the opposite approach. I think young investors should dabble in individual stocks. Better to lose a little while you’re young than a lot when you’re older. Dabbling in individual stocks is what drove me to Jack Bogle and low-cost, well-diversified index funds. Teaching a 25yo about index investing is like roping the wind.

The market will charge tuition. Just a matter of how much you want to pay for the education.

[000]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Interesting. Can you provide evidence for your statement?

Since mutual funds are composed of individual stocks, the performance of the whole average (cap-weighted) of individual stocks must equal the whole average of mutual funds gross of expenses.

Individual stocks have no ongoing expenses and minimal acquisition expenses, so they are less expensive than most actively managed mutual funds.

Thus the average individual stock has higher expected net returns than most actively managed mutual funds.

But, if the stocks are frequently traded, the active fund may cost less.

Also, as the number of stocks owned approaches one, the portfolio of individual stocks becomes more unsystematically risky than the active fund.

Of course, at some low enough ER, it is more effective to own a fund (even an actively managed one) than own individual stocks. But at a high ER, I'd rather own the stocks outright than pay a manager to do it for me.

[burritoLover]

They should dabble in stocks first, otherwise they will get super-confident with their BH portfolio and then when it is big enough, they think this investing thing is so easy that they sell it all and buy TSLA. Best to lose some money early on and learn a valuable lesson.

[langlands]

They should dabble in stocks first, otherwise they will get super-confident with their BH portfolio and then when it is big enough, they think this investing thing is so easy that they sell it all and buy TSLA. Best to lose some money early on and learn a valuable lesson.

It seems the one thing Bogleheads are most confident in is that someone who buys individual stocks will underperform the market.
What happens if that person doesn't lose money early on and doesn't learn his "valuable lesson?"

[FIREchief]

Teaching a 25yo about index investing is like roping the wind.

Well then; I guess it's a good thing I taught my kids about index investing when they were sixteen!

(but seriously, don't you think this is unfair to the vast majority of 25 year olds who are intelligent and interested in learning new worthwhile things?)

[burritoLover]

They should dabble in stocks first, otherwise they will get super-confident with their BH portfolio and then when it is big enough, they think this investing thing is so easy that they sell it all and buy TSLA. Best to lose some money early on and learn a valuable lesson.

It seems the one thing Bogleheads are most confident in is that someone who buys individual stocks will underperform the market.
What happens if that person doesn't lose money early on and doesn't learn his "valuable lesson?"

Doesn't matter - they will eventually.

[langlands]

They should dabble in stocks first, otherwise they will get super-confident with their BH portfolio and then when it is big enough, they think this investing thing is so easy that they sell it all and buy TSLA. Best to lose some money early on and learn a valuable lesson.

It seems the one thing Bogleheads are most confident in is that someone who buys individual stocks will underperform the market.
What happens if that person doesn't lose money early on and doesn't learn his "valuable lesson?"

Doesn't matter - they will eventually.

So what happens when they get on a hot streak with individual stocks and "they think this investing thing is so easy that they sell it all and buy TSLA?"
My point is that getting someone to dabble in stocks because you're confident they will learn their lesson might not be the best idea.

[bondsr4me]

There is no reason for young investors not to invest in stocks.
They just should limit the percentage of their investment to about 5%...this according to Jack Bogle.
That’s good enough advice for me.
The majority of their investments should be in index funds.

[JBTX]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Interesting. Can you provide evidence for your statement?

Since mutual funds are composed of individual stocks, the performance of the whole average (cap-weighted) of individual stocks must equal the whole average of mutual funds gross of expenses.

Individual stocks have no ongoing expenses and minimal acquisition expenses, so they are less expensive than most actively managed mutual funds.

Thus the average individual stock has higher expected net returns than most actively managed mutual funds.

But, if the stocks are frequently traded, the active fund may cost less.

Also, as the number of stocks owned approaches one, the portfolio of individual stocks becomes more unsystematically risky than the active fund.

Of course, at some low enough ER, it is more effective to own a fund (even an actively managed one) than own individual stocks. But at a high ER, I'd rather own the stocks outright than pay a manager to do it for me.

The answer is "it depends". How much are the fees of the active mutual fund, vs what are the trading costs of frequently trading individual stocks. Also with a diversified mutual fund you get diversification benefits, leading to lower risks, all else equal. So for the same amount of risk, you can get marginally higher return with a mutual fund.

[XacTactX]

This is a fantastic video and it should be introductory material for new investors. When I got into investing in 2015 somehow I got lucky and I started with a Target Date Fund, in hindsight I think it was the correct decision for me. If someone is interested in the rush of picking individual stocks I would tell them to limit that activity to 5% of their total investments, or ideally use one of those services that lets them "pretend trade" and see how much money they saved by not picking individual stocks!

[000]

The answer is "it depends". How much are the fees of the active mutual fund, vs what are the trading costs of frequently trading individual stocks. Also with a diversified mutual fund you get diversification benefits, leading to lower risks, all else equal. So for the same amount of risk, you can get marginally higher return with a mutual fund.

I think in the technical sense of "expected return", the diversifiable risks don't matter, e.g. a cap-weighted random selection of stocks on average performs the same as the index. And I still think a 0.50%+ ER is a huge headwind for the active fund to overcome. Trading costs for retail investors aren't that high anymore.

[hnd]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

[JBTX]

The answer is "it depends". How much are the fees of the active mutual fund, vs what are the trading costs of frequently trading individual stocks. Also with a diversified mutual fund you get diversification benefits, leading to lower risks, all else equal. So for the same amount of risk, you can get marginally higher return with a mutual fund.

I think in the technical sense of "expected return", the diversifiable risks don't matter, e.g. a cap-weighted random selection of stocks on average performs the same as the index. And I still think a 0.50%+ ER is a huge headwind for the active fund to overcome. Trading costs for retail investors aren't that high anymore.

But no one buys all the stocks in the index.

[000]

But no one buys all the stocks in the index.

It doesn't matter, because as the number of stocks held increases, the random sample rapidly approaches index performance.

FWIW, Bogle thought 15-20 stocks in diversified industries were "enough" for an investor passively managing individual stocks.

[Taylor Larimore]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Interesting. Can you provide evidence for your statement?

Since mutual funds are composed of individual stocks, the performance of the whole average (cap-weighted) of individual stocks must equal the whole average of mutual funds gross of expenses.

Individual stocks have no ongoing expenses and minimal acquisition expenses, so they are less expensive than most actively managed mutual funds.

Thus the average individual stock has higher expected net returns than most actively managed mutual funds.

But, if the stocks are frequently traded, the active fund may cost less.

Also, as the number of stocks owned approaches one, the portfolio of individual stocks becomes more unsystematically risky than the active fund.

Of course, at some low enough ER, it is more effective to own a fund (even an actively managed one) than own individual stocks. But at a high ER, I'd rather own the stocks outright than pay a manager to do it for me.

000:

Thank you for your excellent reply. I believe you are right about "returns" but we must not forget "risk."

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "Most investors should own equity funds that represent a broad cross-section of the U.S. stock market."

[ChrisBenn]

Not a fan of the title of the piece. The "young" qualifier in the title implies that if one isn't a young investor it's okay to dabble in stocks. Sure, the younger investor has more "time for compounding" -- but the older investor probably has more assets.

If this is meant to speak to younger investors and convey a message then imo it fails - it comes across as "here is something you aren't yet mature enough to handle". That message always goes over well.

Now, if it is meant to speak to older investors and commiserate about the failing of todays youth, well, it might hit that mark

In fact there is no age demographic data in the interview mentioned - so not sure if it's even true. All that is cited is an increase in new brokerage account applications.

[arcticpineapplecorp.]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

one must be careful to not use the term "investing" to refer to any type of buying and selling of securities.

there's investing which involves long term thinking, massive diversification, low cost...

and there's everything else which can be summed up as speculating (not investing) which is more akin to gambling and involves idiosyncratic risk, short termism and not understanding what they're paying (robinhood speculators think they're smart because they pay no commissions but they're getting inferior order execution and therefore worse prices).

it's true that a sucker is born every minute and a fool and his money are soon parted, but that doesn't mean we shouldn't call out products which gamify buying stocks to make a quick buck before being encouraged to trade options and somehow confuse that with investing.

sometimes when you're young, you don't know what you don't know. we've all been there.

[rockstar]

The investing timeline goes something like this. You're young and take a lot of risk, so you go out and buy a bunch of stocks and end picking some duds and lose some money. Then, you get older and move mostly to indexes. You make some money and try to catch up from the mistakes you made earlier. Finally, you get old and think about keeping what you have, but because of the mistakes you made earlier, you find yourself bouncing around different AAs as you try to figure out how risk adverse you really are. It's an interesting learning experiment. I bet the author is really trying to get kids to skip the first step and move to the second earlier, which makes a lot of sense.

[arcticpineapplecorp.]

The investing timeline goes something like this. You're young and take a lot of risk, so you go out and buy a bunch of stocks and end picking some duds and lose some money. Then, you get older and move mostly to indexes. You make some money and try to catch up from the mistakes you made earlier. Finally, you get old and think about keeping what you have, but because of the mistakes you made earlier, you find yourself bouncing around different AAs as you try to figure out how risk adverse you really are. It's an interesting learning experiment. I bet the author is really trying to get kids to skip the first step and move to the second earlier, which makes a lot of sense.

Rick Ferri tries to help people avoid the failures too by showing us the way:

Rick Ferri's 4 stages of investing:

A successful index fund investor goes through four phases:
1) Darkness - takes advice from everyone;
2) Enlightenment - realizes a market return is superior to their return;
3) Complexity - overdoing everything to find optimal;
4) Simplicity - invests in a few total market funds
source: https://twitter.com/rick_ferri/status/9 ... 89?lang=en

it'd be best to just get to step 4 and skip 1-3.

[pennsylvania211]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

I think you hit the nail on its head.

I'm the kid (by demographic) who the Morningstar article talks about. Just look at TD Ameritrade, which 'average' investor needs 50+ different kinds of graphs to decide where to invest???? They all try to make it a game (maybe Vanguard is an exception) and they were doing it before robinhood came along. Robinhood just plays the game better. Robinhood also forced their hand into zeroing trading fees charged directly to customer (yes they still make money on order flow, etc). Can you imagine how the were stuck on the prices for decades until robinhood made them change to zero overnight? Can't expect the establishment to be happy with newcomer for taking their customers and their lunch.

In fact, more people should sign up with robinhood (or any of its look alike). (1) Competition in this industry has lowered trading costs for everyone. (2) Fractional shares have allowed even those with lesser means to invest into our capitalist system - good for the individuals to have some kind of savings for a rainy day and good for capitalism to have more stakeholders in the system when elections come

Robinhood isn't perfect and savings by stocks isn't perfect. But don't let good be the enemy of perfect. It's certainly better than the current situation.

Disclaimer - no stake in any of the companies discussed above

[PicassoSparks]

I don't think you get to complain about shorttermism and then complain about this

(robinhood speculators think they're smart because they pay no commissions but they're getting inferior order execution and therefore worse prices).

It is true that RH makes its money by shaving pennies off of trades by selling its order flows, but the difference to a mid or long term investor is negligible and smaller than the ordinary swings of the stock market on a given day. Remember, mutual funds execute your order at the end of the day so good luck with the idiosyncratic risk of how the market moves over the course of the day.

If you are pattern day trading and trying to shave pennies of your own, sure, don't take RH's sold order flows. But why on earth are you pattern day trading?

Buying ETFs through Robinhood (and other brokers that have had to chase the dropping fees) is a net win for retail investors for whom the fluctuations of the day should be largely irrelevant to their buying and selling decisions.

To get the lowest fee Vanguard products, you need a substantial initial investment to qualify for Admiral shares. Or you can buy into the Vanguard ETFs which carry fees at the Admiral level with no transaction cost aside from the pennies shaved on your order flow.

[nedsaid]

I still hold individual stocks, they are mostly value oriented Large Cap stocks, names that everyone would recognize. Last I looked, I was barely ahead of the Vanguard Value Index over a 15 year period and of course trailed the US Total Stock Market Index. My stocks did about as expected. If I was starting out today, my portfolio would be largely index funds and ETFs based on indexes. I would probably put 20-40% of my money in lower cost active funds or mostly passive factor funds.

Individual stocks are an inefficient way to invest, I had fun and my results were acceptable but in retrospect it wasn't worth all of the work. Individuals that stock pick trail the market averages by 4% a year, last I looked I beat the Value Index but trailed the Total Market and S&P 500 Indexes.

[hnd]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

one must be careful to not use the term "investing" to refer to any type of buying and selling of securities.

there's investing which involves long term thinking, massive diversification, low cost...

and there's everything else which can be summed up as speculating (not investing) which is more akin to gambling and involves idiosyncratic risk, short termism and not understanding what they're paying (robinhood speculators think they're smart because they pay no commissions but they're getting inferior order execution and therefore worse prices).

it's true that a sucker is born every minute and a fool and his money are soon parted, but that doesn't mean we shouldn't call out products which gamify buying stocks to make a quick buck before being encouraged to trade options and somehow confuse that with investing.

sometimes when you're young, you don't know what you don't know. we've all been there.

I agree with you for the most part. but in reality, investing vs speculating is truly subjective. buy and hold....forever? for 5 years? 5 days? They trade executions are pretty well spelled out before signing on. I think many are projecting how they think this product works based on the idea of video games. Its very much a real platform with real information for you to decide whether to buy or not buy shares of stocks. its as easy as all the other platforms I looked at. TD/Etrade/Schwab are just as "easy" to buy and sell and I believe they all too saw upticks in accounts during the pandemic. Robinhood just kind of introduced the no commission sale.

clearly buying individual stocks isn't truly a boglehead methodology but i think its pretty clear based on the posts here theres a lot of dabbling all over the board.

[Sufferlandrian]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Which ones specifically?

[arcticpineapplecorp.]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

one must be careful to not use the term "investing" to refer to any type of buying and selling of securities.

there's investing which involves long term thinking, massive diversification, low cost...

and there's everything else which can be summed up as speculating (not investing) which is more akin to gambling and involves idiosyncratic risk, short termism and not understanding what they're paying (robinhood speculators think they're smart because they pay no commissions but they're getting inferior order execution and therefore worse prices).

it's true that a sucker is born every minute and a fool and his money are soon parted, but that doesn't mean we shouldn't call out products which gamify buying stocks to make a quick buck before being encouraged to trade options and somehow confuse that with investing.

sometimes when you're young, you don't know what you don't know. we've all been there.

I agree with you for the most part. but in reality, investing vs speculating is truly subjective. buy and hold....forever? for 5 years? 5 days? They trade executions are pretty well spelled out before signing on. I think many are projecting how they think this product works based on the idea of video games. Its very much a real platform with real information for you to decide whether to buy or not buy shares of stocks. its as easy as all the other platforms I looked at. TD/Etrade/Schwab are just as "easy" to buy and sell and I believe they all too saw upticks in accounts during the pandemic. Robinhood just kind of introduced the no commission sale.

clearly buying individual stocks isn't truly a boglehead methodology but i think its pretty clear based on the posts here theres a lot of dabbling all over the board.

aside from rebalancing,

Q: When do I buy?
A: When you have the money.

Q: When do I sell?
A: When you need the money.

If you're buying and selling for any other reason (and/or you're buying individual stocks instead of the market), you're speculating.

[hnd]

I almost think people are salty on kids using a products like Robinhood because these kind of products didn't really exist when they were younger and are almost jealous its made it much easier for younger people to grasp the concept of investing. "They aren't doing all the things chapter 11 of The Intelligent Investor said they should be doing like examining balance sheets and pouring over SEC reports so they shouldn't be investing in stocks!"

there are interviews and articles all over the investing landscape of everyone poo pooing this product and others about making investing a "video game". Investing methods are investing methods. Some do better than others. If they get burned they get burned and hopefully they learn. If they don't get burned well good for them! "Well it shouldn't' work that way!" just sounds like sour grapes.

one must be careful to not use the term "investing" to refer to any type of buying and selling of securities.

there's investing which involves long term thinking, massive diversification, low cost...

and there's everything else which can be summed up as speculating (not investing) which is more akin to gambling and involves idiosyncratic risk, short termism and not understanding what they're paying (robinhood speculators think they're smart because they pay no commissions but they're getting inferior order execution and therefore worse prices).

it's true that a sucker is born every minute and a fool and his money are soon parted, but that doesn't mean we shouldn't call out products which gamify buying stocks to make a quick buck before being encouraged to trade options and somehow confuse that with investing.

sometimes when you're young, you don't know what you don't know. we've all been there.

I agree with you for the most part. but in reality, investing vs speculating is truly subjective. buy and hold....forever? for 5 years? 5 days? They trade executions are pretty well spelled out before signing on. I think many are projecting how they think this product works based on the idea of video games. Its very much a real platform with real information for you to decide whether to buy or not buy shares of stocks. its as easy as all the other platforms I looked at. TD/Etrade/Schwab are just as "easy" to buy and sell and I believe they all too saw upticks in accounts during the pandemic. Robinhood just kind of introduced the no commission sale.

clearly buying individual stocks isn't truly a boglehead methodology but i think its pretty clear based on the posts here theres a lot of dabbling all over the board.

aside from rebalancing,

Q: When do I buy?
A: When you have the money.

Q: When do I sell?
A: When you need the money.

If you're buying and selling for any other reason (and/or you're buying individual stocks instead of the market), you're speculating.

i get what you are saying but once again those 2 items are completely subjective. when one has money and when one needs money may be seen as speculation to some.

[whereskyle]

That's kind of confusing. The title suggested (at least to me) that young investors shouldn't own stocks. Apparently that's not what "shouldn't dabble" means.

Dabble means to take a stab at it, try it on for size, play around for a bit. One should not do that with stocks.

[bertilak]

I think it is OK for the young folks to dabble with stocks. They need to get it out of their system.

Sure, some may do (too?) well. "C'est la vie," say the old folks, you never can tell.

But it won't last long and while it does it will be a minority. Most will not have enough available money to get badly hurt either way.

[Fallible]

Two important comments from Benz about young people and investing are: "talk to young folks" and "explain to them." The first refers to a "tax-sheltered investment vehicle to do their saving," and the second is about making sure they "have those short-term reserves on hand."

What's important about these comments - and sometimes is missed here - is that no matter what approach young people (or any novices) take to investing - individual stocks, saving first, indexing, etc. - they should first have good, basic investing advice. Too often they don't have that good advice, so when caught up in the allure of stock-picking pedaled by Wall Street, they are not prepared for the risks and probably not even aware of them. Some young people will ignore that good advice, but when stock-picking doesn't go as planned, they're likely to remember it and know how to correct course.

[FIREchief]

That's kind of confusing. The title suggested (at least to me) that young investors shouldn't own stocks. Apparently that's not what "shouldn't dabble" means.

Dabble means to take a stab at it, try it on for size, play around for a bit. One should not do that with stocks.

Why not just say "young people should learn to invest in stocks via low priced, passively managed index funds instead of trying to outsmart the market by buying and selling individual stocks?" Yeah, you're right, that would never fly as a headline. Better just to say "don't dabble." (or perhaps, nothing at all? )

[000]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Which ones specifically?

The ones that go up

[bertilak]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Which ones specifically?

The ones that go up

Sounds like the Will Rogers Investment Policy:

• Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

Very high expected return!

[burritoLover]

No young Robinhooder is going to be reading Morningstar articles, let alone anything on something as antiquated as an internet forum.

[000]

Individual stocks have a higher expected return than the actively managed mutual funds Morningstar promotes.

Which ones specifically?

The ones that go up

Sounds like the Will Rogers Investment Policy:

• Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

Very high expected return!

The only investment plan you need!

[1789]

Bogleheads:

Morningstar, the leading company for mutual fund information, has an excellent article featuring Christine Benz, Morningstar Director of Personal Finance and a Boglehead supporter. These are excerpts:

"some of the apps like Robin Hood have done a good job of kind of gamifying investing in the market. So they've made it fun, they've made it playful."

"if they can invest in a diversified broad basket of equities, that probably gives them a better runway to earn good long-term returns over their very long time horizon. So my advice would be to skip the individual stock investing and move straight to a broad basket, maybe an index fund or a target-date fund."

"And I think it's also important to talk to young folks who have a salary about the virtue of using some tax-sheltered investment vehicle to do their saving."

"So I think if you have someone near and dear to you, explain to them the virtue of making sure that you have those short-term reserves on hand."

"Bogleheads is a fantastic resource for investors of all ages. I would also recommend a couple of books. I love the “Bogleheads Guide to Investing.”

"Well, it's interesting because at Morningstar we're big advocates of getting started early and letting compounding work for you. But day trading is probably not the way to do it."

"it reminds me, Susan, of so much of the early 2000s/late-1990s period, where everyone had to have a brokerage account and many investors had predictably awful results because they were just performance chasing. -- So I think starting broadly diversified makes a world of sense for a young investor."

Why Young Investors Shouldn't Dabble In Stocks

Best wishes.
Taylor

Jack Bogle's Words of Wisdom:

"If you're not investing, now is the time to start. The best single thing that can happen to young investors who are accumulating money is a major and sustained market decline."

Thank you Taylor.

Do you see any similarities to 1993-1999 period where almost everyone was buying individual tech stocks? I believe most people still buying tech stocks and i don't see anyone buying Walmart, for example.

[whereskyle]

That's kind of confusing. The title suggested (at least to me) that young investors shouldn't own stocks. Apparently that's not what "shouldn't dabble" means.

Dabble means to take a stab at it, try it on for size, play around for a bit. One should not do that with stocks.

Why not just say "young people should learn to invest in stocks via low priced, passively managed index funds instead of trying to outsmart the market by buying and selling individual stocks?" Yeah, you're right, that would never fly as a headline. Better just to say "don't dabble." (or perhaps, nothing at all? )

I tell young and old the same thing and it sounds a lot like the quoted material.

[BogleFan510]

I kind of personally both agree and disagree. Dabble is not thoughtful. If one really understands what they are buying, I believe individual stock ownership can work quite well as a compliment to indexes, if held at least 10 years or more.

My examples include:

* choosing a good company to work for, then investing to take advantage of the ESPP. If the total buy in is not too much of one's total net worth, the subsidy plus insider knowledge of bad prospects, I think will outperform on average.

* choosing to buy companies where you know the industry well and have a reasonable, professionally evaluated expectation that a proven innovation will create excellent growth prospects. The interesting thing for me is that predicting when the market will recognize the value is very difficult. This is why the 10 years wait is included in the example, as my personal experience with share price growth, is that it mostly occured within 6ish unpredictable months, over at least a decade or more.

I have had both good and bad results with individual stocks using the first point above, but the overall individual stock portfolio has definitely outperformed my indexes, mostly via about 10 stocks I bought in the second category. One stock has a 40x return over initial price after roughly 10 years, another had a 60x return before I dabbled in covered calls (which cost me quite a bit of upside).

Hard to match that with an index, so while limited to under 5% of my invested dollars in cost basis, our individual stocks are about 20% of our net worth, so no regrets. As a retired person, I now avoid new buys, since I dont feel I have sufficient insider knowledge anymore.

[Taylor Larimore]

"Taylor Larimore" post:

Do you see any similarities to 1993-1999 period where almost everyone was buying individual tech stocks? I believe most people still buying tech stocks and i don't see anyone buying Walmart, for example.

1789:

I remember the buying frenzy for tech stocks in the late 90's very well.

In January 2000, at the top of a long bull market, I attended a Miami Herald Money Show featuring Jack Bogle and Jim Cramer. Jack spoke first and warned the large audience that "the stock market is overvalued." When it was Mr. Cramer's turn, he asked everyone to write down the names of ten stocks (all technology) and invest in them when they returned home.

Four years later in Barron's magazine, Alan Abelson wrote: "Cramer's 10 dot com bubble picks of 2000 ended up tanking by an average of 90%."

It could happen again to those who bet on one corner of the market.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk."

[edgeagg]

Well, I have a "young investor" at home. He is 9 years old. A few years ago, when he was 3, we had about 5K to invest for him from gifts that various people made. Guess where it went: VFIAX. We rebalance a small amount into VBTLX every 3 months - because he gets to see the miracle of compounding in action. And I get to emphasize to him that he has to do nothing to get it.

Recently, he withdrew $15 in cash (gasp) from his profits to buy a toy that he had been hounding us about - the point about not working to get the $15 came across loud and clear.

So younger investors can be educated, but it does help to have parents who are Bogleheads.