Should you buy Amazon stock or a total market index fund? This is one of the most common questions we get from new investors. Here’s the honest answer.
The case for index funds
An index fund gives you a tiny slice of hundreds or thousands of companies at once. When one company has a bad year, others offset it. Over 20 years, roughly 90% of actively managed funds underperform a simple S&P 500 index fund after fees.
The case for individual stocks
You can beat the market—but the odds are against you. Most professional fund managers can’t do it consistently. Without deep research and time, individual stock picking is closer to gambling than investing.
Our recommendation for beginners
Start with index funds. Build a foundation. Once you have 6 months of expenses saved and a fully funded IRA, then you can experiment with individual stocks using money you can afford to lose.