Hey guys! It's Justin Goodbread, with Financially Simple. So here's a question
for you. Should you invest in individual equities? Individuals typically under the
age of 30 are really excited right now about individual stock. I've talked to
three different people that I've known for many years. They're like, "Man I'm making a
killing in the stock market. I'm buying and selling stocks on a daily basis and
I made..." One guy said, "I took $40,000 and it's currently
worth a hundred and $110,000!" I mean that's awesome
that's great. "Over what period of time?" "Well, it's been about three years." "Okay, that's
really good, really good." "Yeah, so where are you doing this at?"
"Well, I'm...what you mean?" "Well what type of account are you using?" "Well, I've
got a retirement account. I've got a Roth but I'm not using that, I'm just using individual cash." Forget the
taxation on the issue. He really didn't make, even though his portfolio grew, he
pay short term capital gains on the gains, on the difference of his original investment and
the current value, because he was day trading. So in his case 25 to
30% of the earnings were gone. So he ended up having to pay that out of
his income. He's like, "Yeah I couldn't figure out how to do that." A wealth planner
could've showed him how to set it up. Alright, so that's one, that's one
conversation I've had. The second guy said, "Man I'm making a ton of money
in online currencies right now." "Yeah, Bitcoin, I've heard of it. I know it very
well. I watch it." "Yeah, I'm making a ton of money
there." Now, let's flip the pendulum. Now whenever I see people in their 40s or
50s, or late 30s, early 40s are like, "Man I am never ever, ever buying an individual
stock again!" I have my butt chewed. I mean I just got worn out." What happens is, in
that avenue between the early age of 20s, whenever you get in a bull market, which
is what we've had this last little bit, and now your 30s or 40s you've already
gone through a good bear market typically. I can remember a young investor
back in the day, he was buying some energy stocks and he took about $10,000
portfolio and grew into like $60,000. But he didn't protect himself. He didn't do,
he didn't use portfolio theory and ended up losing most of that $60,000 back down to like
$8000. He's like, "I will never buy an individual stock again." I'm like, "Brother, it's not
the individual stock. It's that you didn't use investment matrix. You didn't use
good investing sense." Now, let's fast forward. I'm seeing a phenomena right
now with individuals who are in their 50s—late 50s say, "I want to buy
individual stocks now." We're on a very very strong bull market. The bear is
coming. I don't know when, but he's coming. And the investor sediment, in other words
how investors feel is, "Well the market is really good. I really feel endowed right
now. so I want to go out buy some individual equities. Besides all my
buddies are doing and they're making like 30% return." I'm like "Possibly." I tell you that
to say should you buy individual stock? You know I can tell you I am NOT a fan
of day trading. I just don't believe, that in the long run, it accomplishes what
people are trying to achieve for the long run. Now it's fun.
Trust me! It's like going to Vegas. It is fun, but to me it just doesn't make sense.
I have friends, I have a lot of financial advisor friends across this country and
we compare, off record, we look at portfolios that we manage and we say, "Hey
look," the key obviously not sharing client names or anything like that. We'd be like,
"Look I've got this portfolio that's $300,000 that I'm managing for somebody and
I'm using..." Me I like to use passive investments versus stocks, but he's like,
"Man I'm day trading this account and I'm up X number of percent. I'm like, "Really? over what time
period?" "Oh in six months." "Okay, how did you do over the last two years?" "Well,
let's look at that." So he'll look at the percent return on his screen, and we usually
on the phone we do this, and I look at my percent return and it's
exact same thing. "Man, all this work I'm doing I'm yielding, your doing the
exact same return on a very similar portfolio." I'm like, "Yeah, man."
"Why is that?" I said, "There's a little thing called Modern Portfolio Theory." I believe the
markets are efficient. That's my belief. I don't believe that you can outperform
individuals, who have potentially inside information, who are trading in
nanoseconds; I don't believe the average Joe, whether it be an individual investor
do it DIY guy, or a broker, I don't believe they can outperform the markets over
long term. If that were possible, then the mutual fund, the active of mutual fund
managers would be able to do that. Because they have a, they have research teams. I
mean highly educated people that track this; and many times they don't outperform the
markets. So, should you buy individual stocks? If you work with me, I'm going to tell
you no. I just, I don't do it. I'm not gonna do it. I'm not a day trader. I
don't believe it works. There's too much data out there which proves that if you
just build a good balanced portfolio, a portfolio that's blended to your
particular risk tolerance. Now, this is the key. Rebalance it tactically.
If you can do that, you're gonna get a good market return. And you're gonna get
a return that you need to meet your goals. Then you don't have to worry about
where the markets up 20% or down 20%; you don't have to worry about it. That's food for
thought, just the things I'm seeing right now in the industry. So hey guys
Justin here. I'm signing off y'all have a good day.