Lesson 4.1 · 1 of 6 · Stocks or ETFs: what suits you
Investing in individual stocks: the pros and risks, with examples
With individual shares you choose exactly which companies you own, and you pay no annual fund charge. In return, you carry each company’s risk yourself and need time to follow them. Historically, most US shares have returned less than short-term Treasury bills.
Terms in this lesson
- Stock
- A small piece of a company that you can buy on the stock exchange.
- Diversification
- You spread your money across several investments, so one mistake does not hurt too much.
- Annual report
- The document in which a company presents its figures and its business for a full year.
- Quarterly earnings
- The three-month figures listed companies publish four times a year.
Opening question
What extra risk do you take by investing in 3 shares you pick yourself, rather than an ETF tracking a broad index?
With 3 shares, each is a third of your money: bad news at one of them is felt straight away across the whole portfolio. Shares held directly have no annual fund charge, and big companies can fall a long way too.
It does not matter if you get it wrong: trying first helps you remember.
What you gain by picking your own shares
You invest only in the companies you understand and want, and steer clear of the ones you don’t.
You pay when you buy and when you sell. No TER comes out of your money every year.
A well-chosen company can grow far faster than the index. The hard part is spotting it in advance, not after it has risen.
There are other perks too: you receive dividends directly, you can vote at shareholder meetings, and you learn a lot about how a business works.
Compare
You want to pay no annual fund charge for as long as you hold the investment. Which option does that?
Shares held directly carry no annual fund charge, although some brokers charge a custody fee. The cost of a large index ETF is small, though: 0.07% is $7 a year on $10,000.
The risk of a single company
Watch out
How often does a randomly picked share pay off?
All of the US stock market’s net gain came from about 4% of companies.
Hendrik Bessembinder studied every US share listed since 1926. Most of them returned less over their whole life on the market than one-month Treasury bills. When you pick a handful of shares, the chance of catching the few that grow enormously is small. An index holds them automatically.
US shares, 1926-2016.
You can see the risk in how much each share weighs. With 5 equal holdings, each is 20% of the portfolio: if one halves, the whole portfolio falls by 10%.
Work it out
You own 4 shares, each worth 25% of your money. One falls by 60% and the others stay flat. By what percentage does the whole portfolio fall?
A hint
Multiply the share’s weight by its fall.
How sure are you?
25% × 60% = 15%. In an ETF where that company is 2% of the fund, the same fall would have cost the portfolio 1.2%.
Myth or fact?
“If I only pick big, well-known companies, the risk is small.”
This exercise is in the free account, where we also save your progress.
Create a free accountHow much time individual shares take
Definition
What do you follow at each company?
Results four times a year, the annual report and any major news.
US companies publish results every quarter and an annual report. For each share, it is worth reading at least the summary of the results and checking whether your reason for buying still holds. Each company’s analysis page on einvestitii.ro gathers the key figures in one place.
Work it out
You own 8 shares and read each one’s results once a quarter, about 30 minutes each time. How many hours a year does that take?
This exercise is in the free account, where we also save your progress.
Create a free accountIndividual shares
- You choose exactly which companies
- No annual fund charge
- You can beat the market if you choose well
- High risk in each company
- They take time: results, reports, news
- Easy to make emotional decisions
Index ETF
- Hundreds of companies in one purchase
- Takes very little time
- Low annual charges on the big ETFs
- You get the market’s return, no more
- You pay the charge every year
- You don’t choose which companies are in
What would you do?
You have read a lot about a company you really like. You are thinking of putting 70% of your investment money into it. What do you do?
This exercise is in the free account, where we also save your progress.
Create a free accountWhat you learned
- With individual shares you choose the companies and pay no annual fund charge.
- You carry each company’s risk yourself, and historically most shares have returned less than cash.
- Individual shares take time: quarterly results, reports and news.
You reached the end
Keep what you learned
With a free account we remember your lessons, bring back the questions you got wrong exactly when you need them and keep your streak.
Save your progress with a free accountLessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: H. Bessembinder, “Do Stocks Outperform Treasury Bills?”, Journal of Financial Economics, 2018 (US shares, 1926-2016); Meta, 3 February 2022 (CNN); Wirecard’s insolvency filing of 25 June 2020 (CNBC); TERs of S&P 500 ETFs: justETF, as of 28 October 2026.