The following is my answer to a Quora question: “Which is the better choice for an investor - index funds or individual stocks?”
Individual stocks may do better, but only if you picked them
correctly, but an index fund is broadly guaranteed to grow over an extended
investment horizon do to the nature of the market and the power of
compounding. Individual stocks may offer
focus, but index funds allow you to diversify into other markets and sectors in
a more affordable manner. Unless you
know the company well, or its market position is secured, such as a near
monopoly in a growth industry, you are
better off buying into an index fund.
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