By Ryan Vlastelica via marketwatch.com Article
I drove myself crazy by investing $3 in the stock market
“Turns out, it doesn’t cost much to drive yourself batty over your investments.
For the past week, ever since I broke one of my cardinal investing rules by buying an individual stock, I have experienced pronounced emotional swings over the company’s every tick and trade, feeling accomplished when the price rises and despondent when it falls.
The size of my investment is $3.44. Total. Here’s what happened. I recently realized that my portfolio account had about $10 in cash—a years-old dividend payment from a fund I had subsequently changed to reinvest them (as long-term investors always should). It seemed silly to request a $10 check just to put it into my savings account, so I decided to roll the dice and buy something. Evidently I was feeling wild that day.
The stock in question, of which I am the proud owner of two—count ‘em, two—shares is Navios Maritime Acquisition Corp. NNA, +2.42% which is evidently in the ‘marine transportation business,’ according to FactSet, which means it owns a fleet of oil tankers and other vessels. I say ‘evidently’ because I didn’t know what the company did when I bought the stock. So help me God, I bought it because it was the first thing I found that I could ‘afford’ with my $10, and because, in the scant research I did, I liked its dividend yield (an admittedly impressive 12.1%, which amounts to an extra dime for me every three months).
It should go without saying, but this is not how you should compile your portfolio.
The way one should put together his or her portfolio, generally speaking, is to load up on low-cost index funds and hold them for the very long term, getting the benefit of compound interest. Index funds track broad parts of the market, and are considered a safer investment than individual stocks by reducing single-security risk. According to data from Charles Schwab, investors have a 40.1% chance of losing money if they hold five stocks, a risk that drops to 25.5% if they own 20 and to 12.9% if they own 40. Index funds, such as ones tracking the S&P 500SPX, +0.73% give investors exposure to hundreds of names.
When it comes to single securities, your odds of outperforming are even lower. The average stock, when taken individually, not only underperforms when compared to the overall market, but also may even lose out to Treasurys, considered among the safest and most static of assets.
Read more: Here’s why you shouldn’t buy a stock ever again“