So, you’ve been in the long term investing game for a while and you’re considering a move beyond exchange-traded funds (ETFs). But wait a minute - should long term investors buy specific companies?
Good question.
As you may already know, most of the Pearler community prefer ETFs over individual shares. Our long term investors want to build their wealth using diversified portfolios, and ETFs are a simple way to do that. ETFs allow a no fuss, passive investing strategy, and need minimal time to select and monitor investments.
But, some of us long term investors have that itch to go a bit further with our portfolios. We want to tap into the US market and “buy a slice of America’s future” (credit: Warren Buffett). There are a couple of ways you can do that with Pearler.
The first is to buy US-focused ETFs like IVV (tracks the S&P 500 index) and NDQ (tracks the NASDAQ-100 index).
The second is to buy individual US shares to get direct exposure to specific companies.
Reasons long term investors buy individual shares
If you can gain exposure to the US market using ETFs, then why invest in individual US shares?
Well, there are a few reasons long term investors may want to supplement their ETFs with shares in specific companies:
- A desire to diversify beyond funds
- A higher appetite for risk
- An urge to support a specific company or cause (e.g. "I love Disney, so I bought DIS shares", or "I want to support the push towards electric vehicles, so I invest in Tesla")
As you can see, the motivations for buying individual US shares can be different for each long term investor.
What are the benefits?
There are several benefits to investing in direct shares. The obvious one is that you have more control over your investments; you choose the specific company you want exposure to.
Also, if the company experiences a boom in performance, you reap the returns in full rather than the weighted average performance of holdings.
What are the risks?
With direct shares, you don’t get the diversification benefits that ETFs offer. As a long term investor, you can manage the risk by limiting the portion of your portfolio invested in specific companies.
You may also notice more volatility in your portfolio as you wear the rises and the falls in company performance. These movements aren’t tempered by the performance of other companies as they are with ETFs.
Investing in individual shares also requires more time and dedication to research the company and monitor it over time.
How to invest in individual US shares
Buying shares in specific companies can be a suitable strategy for long term investors. However, it’s not for everyone.
It all comes down to your personal investing goals and strategy.
Only you can decide whether buying shares in specific companies is right for you. If you would like to invest in US shares, head over to our invest page. You can activate US investing by setting up a Pearler Shares investment account.
Before you click “buy”, make sure you do your research!
