Many people feel intimidated by the world of investing, but it doesn’t have to be complicated.
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Many people feel intimidated by the world of investing, but it doesn’t have to be complicated. As a financial advisor, I’ve seen countless individuals build wealth by taking a common-sense approach. For many, that journey begins with investing in individual stocks you truly believe in. While this may sound like a beginner’s tip, it’s a principle even the wealthy understand and appreciate. (And I’ve spent my entire career, beginning way back in high school when I got a job at a bank, studying and figuring out how the rich get richer.)
When it comes to individual stocks, have you ever been fascinated by companies like Apple, Tesla, Amazon, Chipotle, or the Cheesecake Factory? Do you admire their mission, products, or management style? Investing in these kinds of companies, where you feel a personal connection or a strong belief in their potential, can be a highly satisfying way to start building your portfolio.
The Power of Investing in What You Know
I always tell my clients, “Invest in what you know.” When you’re familiar with a company, it provides insights and can reduce investment risk. For many wealthy individuals, this means buying individual stocks from Fortune 500 companies that we are all familiar with, such as Apple, Microsoft, and Google. They might choose to invest based on their specific preferences, risk tolerance, investment goals, or even their values, supporting companies that align with their ESG (Environmental, Social, and Governance) initiatives or passions or beliefs.
In fact, some of my clients use individual stock picks as a learning tool for their kids, teaching them how to research and follow performance. I have sat down with quite a few young people over the years whose parents or grandparents sent them to me to learn the basics. I always ask them about the products they love, like their iPhones or a company associated with their favorite sport.
This common-sense approach is backed by a fundamental truth: individual stocks can offer significant returns, especially if you pick a company that experiences substantial growth. Unlike mutual funds or ETFs, the performance of individual stocks is not diluted by other assets in a portfolio. Plus, many individual stocks provide dividends, offering a regular income stream in addition to capital gains.
Playing the Long Game with Discipline
However, believing in a company isn’t enough; you need a strategy. The rich, especially the smart rich, play the long game. This means delaying gratification, being disciplined about saving, and looking to the future rather than chasing the next “bright, shiny object.” As Warren Buffett famously said, his favorite holding period is “forever.”
Discipline is everything in investing. It helps you stick to your investment strategies and avoid making impulsive decisions based on emotions, like fear or greed. Markets can be volatile, but disciplined investors are better equipped to handle fluctuations without panicking, avoiding the common pitfall of buying high and selling low. When stocks decline during a market correction, wealthy individuals often view it as an opportunity to buy.
Remember, “Idle money is dead money.” Leaving your money in a savings account offers pitiful returns, usually not keeping up with inflation, and provides limited growth potential. Your money has to work for you.
Navigating Risk and Diversification
While individual stocks can be a powerful wealth-building tool, it’s crucial to understand risk and the importance of diversification. Investing all your money in a single company, or even a few stocks, is a high-risk strategy. My core advice is the old adage: “Don’t put all your eggs in one basket.” Spreading your investments across various asset classes (stocks, bonds, real estate) is smart for handling risk.
As your portfolio grows, diversification becomes even more important. You may get rich with individual stocks, but you stay rich with diversification. This means continuously reviewing and adjusting your portfolio to align with your investment goals and risk tolerance. Your risk tolerance isn’t static; it changes with age, your financial goals, and personal circumstances.
It’s also important to stay informed about market trends, economic news, and corporate activities, as these can significantly affect stock prices and market sentiment.
For many, especially beginners, navigating these complexities can be overwhelming. This is where a trusted financial partner comes in. My philosophy is that “personal finance is more personal than finance.” My firm takes the time to understand your “why”—your passions, dreams, and what you want money to do for you. This holistic approach ensures your individual stock investments and your entire financial picture are part of a tailored strategy to achieve financial freedom.
So, if you’re ready to start your investing journey, consider those companies you admire. But remember to combine that belief with discipline, a long-term mindset, and a commitment to diversification as your wealth grows. That’s how the smart rich get richer.