Individual stocks tend to be pretty good for hedging out your own risk/rewards. For example, I've taken a rule of thumb to not invest into Technology, because I work for a company who is tied pretty strongly to Technology.
Buying "market averages" may have me putting up multiple eggs in one basket. Take SPY for instance, its top holding is Apple right now.
Now, I can buy SPY, and then hedge against technology by buying individual stocks in Coke, Johnson and Johnson, and Plum Creek Timber.
Will I beat market averages? Probably not. But when the technology sector crashes (and one day in the future, it WILL crash again), I may be out of a job... but at least Coke, J&J, and Plum Creek Timber will not crash with me.
I can guarantee that my holdings in SPY (a general S&P Index ETF) will crash in the next "Tech Bubble crash", but I'd be very surprised if my other holdings crashed with it.
There is more to investing than just maximizing your average gains. Minimizing risks, and spreading out your assets by nature reduces the amount of gains you will get... but your financial life may be safer as a result.
Individual stocks tend to be pretty good for hedging out your own risk/rewards. For example, I've taken a rule of thumb to not invest into Technology, because I work for a company who is tied pretty strongly to Technology.
Buying "market averages" may have me putting up multiple eggs in one basket. Take SPY for instance, its top holding is Apple right now.
Now, I can buy SPY, and then hedge against technology by buying individual stocks in Coke, Johnson and Johnson, and Plum Creek Timber.
Will I beat market averages? Probably not. But when the technology sector crashes (and one day in the future, it WILL crash again), I may be out of a job... but at least Coke, J&J, and Plum Creek Timber will not crash with me.
I can guarantee that my holdings in SPY (a general S&P Index ETF) will crash in the next "Tech Bubble crash", but I'd be very surprised if my other holdings crashed with it.
There is more to investing than just maximizing your average gains. Minimizing risks, and spreading out your assets by nature reduces the amount of gains you will get... but your financial life may be safer as a result.