Is Investing in Stock and Bonds Ever a Good Idea?

History and drama surround Wall Street.

Broad-Based Funds Are Safer

Seldom, if ever, is it wise for individuals to enter directly into the stock or debt markets. Experts agree that most individual investors are better off participating only indirectly, through broad-based managed funds or exchange-traded funds (ETFs).

Some Companies Are Better Run Than Others

Anyone who reads the business news has opinions about which companies are well run.

The opinions of individual investors about stock and bond issuers are often intelligent. Still, they are almost always based on information that has already been discounted into the price of the securities issued by those companies, so they are not reliable as predictors of investment performance.

Bottom Line

Authorities agree that most individual investors and households, especially those of modest means, should resist the temptation to pick individual winners. In the words of William Wolman and Anne Colamosca, writers with Business Week, "Positive profit surprises for some companies always come at the expense of bad news for other companies. The list of companies that stumble is long and sometimes includes the totally unexpected."

References

• "A Random Walk Down Main Street"; Burton G. Malkiel; 1996
• "The Great 401(k) Hoax"; William Wolman and Anne Colamosca; 2003

Resources

• The San Diego Union-Tribune: Rage Against the Machine