What’s the best way to get rich investing in individual stocks? All you have to do is travel back in time to 1980 and buy a bunch of shares of Apple. Not bad, right?
The truth is, it’s a trick question. If your goal is to build a secure financial future for yourself, it may be wise to avoid buying and selling individual stocks altogether. Warren Buffett, perhaps the wisest investor and most experienced stock-picker who has ever lived, advised his heirs to invest his entire fortune in low-fee, highly diversified funds that mimic the movement of the overall stock market owing. This is called passive investing — which is investing in low-fee funds that track sectors of the stock market, and it’s the opposite of picking individual stocks.
Because it turns out that humans aren’t great at picking winners when it comes to the market. Study after study has demonstrated that people who pick stocks do worse than those who park their money in a highly diversified bundle of equities. Because of their incredibly low fees and ability to mimic the steady growth of the stock market, Wealthsimple recommends investing in ETFs.