When the stock market came tumbling down during the Great Recession, many investors ran for the hills. Jim Wang, the founder of Best Wallet Hacks, had a different idea. He saw an opportunity in the low stock prices and bought shares in several companies, including Southwest Airlines. That single stock investment returned 950% within 10 years of Wang's 2009 investment.
Common wisdom in the stock market today tells most investors to avoid individual stocks in favor of low-fee funds. However, there are plenty of examples of investors hitting the jackpot on a single stock investment or a handful of good picks.
While single stocks are riskier than a diverse portfolio, they offer opportunities for a big payoff if your investment and timing are right.
Key Takeaways
- Buying single stocks can give you more control over your portfolio and investment decisions.
- With research and great timing, you may be able to spot a winning stock that goes on to increase its value many times over.
- Be prepared for other factors that could disrupt the value of your pick and for losses in your portfolio, which may offset your gains.
The Single-Stock Debate
While the stock market has been a popular investment option for a very long time, the way people invest is changing. Over the last few years, single-stock investments have gone out of favor when compared to low-cost index funds, but many investors still stick with portfolios of individual stocks.
Advocates for low-cost funds argue that investors are best off buying a broad portfolio of stocks that emulates the market as a whole. On the other hand, advocates for single stocks appreciate the granular control of each investment and the portfolio as a whole.
Note
There is no right or wrong answer here. You just need to figure out what works best for your investment goals and risk tolerance.
Examples of Single-Stock Investment Success
Remember that not every stock pick will work out in your favor. However, it is possible to make a really lucky guess that will pay off down the line.
To show exactly how well some single-stock investments pay off, here's a success story from an expert in the world of investing. Julie Rains, a blogger atInvesting to Thrive, advocates investing in single stocks as part of a well-constructed portfolio. Julie invested $7,000 in California-based computer-graphics-chip manufacturer Nvidia. The stock became a tenbagger; its value increased 10 times to more than $95,000 after she purchased it, as NVDA achieved advancements in deep learning and software for thedriverless carmarket.
Expect Offsetting Losses
Just because one investment was a breakout success does not mean that every investment will perform well. Consider the investors who struck it rich with a small investment in Bitcoin. While it's not a single stock, Bitcoin investments have many of the same characteristics as investments in a single stock. An investor who put $100 into Bitcoin in 2010, when a single bitcoin could be bought for 10 cents, could realize tens of millions in gains if they held on to that investment until 2021.
Massive gains are certainly outside of the norm. Furthermore, if you hold multiple stocks in your portfolio, some of them are bound to perform poorly, offsetting the gains you have made. It's nearly impossible to pick all winners all the time.
What Are Your Chances?
If you start buying single stocks, what are the odds you will have the same success as Wang or Rains? The somewhat frustrating answer is that it depends.
The future performance of single stocks is based on many factors, including the company's financial performance and overall economic and market conditions. A change in interest rates or unemployment figures is often enough to send stocks into a tizzy, and earnings announcements can have a major impact in the short term as well.
Note
Every stock is unique, as is every trade. Even when it comes to the same company, two trades will not perform the same unless both positions were purchased for the same price.
To get the best results, focus on a long-term investment strategy. If you focus your investments in companies with a strong financial foundation and a proven business model, they are very likely to go up over time. There is always a risk that their values will decline, but much more so with a short time horizon than with a longer one.
There are no guarantees in the stock market, and single-stock investments are riskier than investing in a diverse portfolio. Still, sometimes, those single stocks work out great and offer amazing returns. When that happens, you've found the holy grail of the stock market.
Frequently Asked Questions (FAQs)
Can one share of a stock make you rich?
Getting rich off one company's stock is certainly possible, but doing so with just one share of a stock is much less likely. It isn't impossible, but you must consider the percentage gains that would be necessary to get rich off such a small investment. For example, if a stock share costs $100 and it becomes a tenbagger, you'll have $1,000, and many wouldn't consider having $1,000 to be "rich."
How do I buy individual stocks?
Buying individual stocks is largely the same process as buying ETFs, mutual funds, and bonds. You'll need to open and fund a brokerage account that gives you access to the market. From there, you can use a stock screener to filter through the market and narrow down your choices. Once you are ready to buy a stock, you just need to place a buy order.
FAQs
Yes, if your goals are realistic. Although you hear of making a killing with a stock that doubles, triples, or quadruples in price, such occurrences are rare, and/or usually reserved for day traders or institutional investors who take a company public.
Can 1 share of stock make you money? ›
With just $1, making significant money in stocks is challenging due to limited buying power and transaction fees. However, some platforms offer fractional shares, allowing investment in high-value stocks with small amounts. While gains would be minimal, it's a way to start and learn about investing.
Is it a good idea to invest in only one stock? ›
Cons of Holding Single Stocks
It is harder to achieve diversification. Depending on what study you are looking at, you must own between 20 and 100 stocks to achieve adequate diversification. Going back to portfolio theory, this means more risk with individual stocks unless you own quite a few stocks.
Do single stocks have high return? ›
Investing in individual stocks can generate higher returns than mutual funds and ETFs. The opportunity for higher returns is the primary reason some investors prefer to pick individual stocks rather than funds. Achieving a higher return can help you reach your long-term financial goals sooner.
How much money do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How to invest $1 dollar and make money? ›
Let's dive in.
- Beginners with little money should find an exchange that offers fractional investing. ...
- If your capital is limited, consider investing in blue-chip or dividend stocks to start. ...
- You can also pick a market-wide ETF to build your baseline. ...
- Once you get some returns on your dollar, sell and diversify.
Alongside Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), and Apple Inc. (NASDAQ:AAPL), Adobe Inc. (NASDAQ:ADBE) is one of the best money making stocks to invest in. In its Q3 2023 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Adobe Inc.
Is it risky to invest in one stock? ›
If that stock performs poorly or tanks, you can suffer substantial losses, potentially losing your entire investment. Diversifying your investments across different assets and industries can help mitigate risk and protect your portfolio from the impact of a single stock's decline.
How many shares of stock to make $1,000 a month? ›
To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.
Is it smart to own individual stocks? ›
Individual stock ownership may offer benefits that fit your investment needs, but you should consider the trade-offs to owning a large number of individual stocks. If you want the control and involvement of choosing which stocks to own, individual stocks may fit your needs.
Therefore, sticking to the rule of keeping no more than 10-15% of your overall portfolio invested in a single stock may become even more critical of a benchmark to follow both to mitigate volatility, potential returns, and hazards to your overall financial life.
How does a single stock work? ›
Single-stock ETFs are leveraged ETFs whose performance is related to the daily return of an individual stock. For example, if Amazon stock increased by 2%, a 2X Amazon single-stock ETF would increase by 4%.
Why not to buy single stocks? ›
Financial pros like Benz urge investors to build broadly diversified portfolios for a reason: While the overall historical trajectory of the stock market has trended upward, any individual stock has a chance to decline sharply in price and destroy your portfolio's returns.
How long should you hold a single stock? ›
Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Can I make money in stocks with $1000? ›
$1,000 is enough to consider some solid stock choices. If you have an extra $1,000 sitting in a savings or checking account, one of the best ways to earn a return on that money is to invest in the stock market.
How many stocks should I own to get rich? ›
What's the right number of companies to invest in, even if portfolio size doesn't matter? “Studies show there's statistical significance to the rule of thumb for 20 to 30 stocks to achieve meaningful diversification,” says Aleksandr Spencer, CFA® and chief investment officer at Bogart Wealth.
Has anyone ever gotten rich from stocks? ›
Certain billionaires made their fortunes in the stock market. The list includes John Paulson, Warren Buffett, James Simons, Ray Dalio, Carl Icahn, and Dan Loeb. Buffett is by far the richest person of these six famous investors, with a net worth of $116 billion.
Can you get rich off stocks with little money? ›
Anyone can make money in the stock market – as long as you start early, stay invested, and invest consistently. The very first step is to open a robo advisor account and start investing even if it's $1 a week. Over time, small investments compound, which is why beginners can become stock market millionaires.
