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How to choose between passive vs. Active investing

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The reason I hate investing in individual stocks is because at the end of the day there will be winners and there will be losers. All of your individual stock holdings will not win. To win at investing in individual stocks your winners have to outperform your losers. Your winners have to win bigger than your losers losses. At the end of the day they may just end up canceling each other out and that is why you have to cut your losers short and let the winners ride. I always end up wishing I had invested more capital in the winners and less In the losers.

I wish I knew that low cost broadly diversified index funds always win, because then I wouldn’t invest in anything else. I hate losing as much as the next guy. That’s why I know individual stock investing is not for me. I would rather buy them all in a total stock market index fund. The reason being is because I know that I love buying the dip. I love averaging down or dollar cost averaging, but with individual stock investing that is not always the right move and that’s the hardest part. Knowing when to buy and when to sell is hard with individual stock investing. Partly because it involves market timing, especially if you are selling high; which is what you are supposed to do. But how high exactly do you let your winners ride. Do you sell 1 year , 5 yeas or 10 years into a bull market and what percentage of your stocks do you sell. You are not to sell low which is what cutting your losers entail.; and what the heck are you to do during a market crash when everything is loosing. With index fund it’s clear. Always buy and never sell until retirement or sell some off the top if you must, but sell at new market all time highs. Also set an asset allocation and rebalance when necessary. The total stock market index fund will go up forever and will never declare bankruptcy. Time is your friend and if you have a lot of it, use it wisely. Sit back relax and let the market give you its average 9% returns.

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