Analysis · 17 September 2026 · Edmund Whitmore-Cray
Holding individual shares: when it makes sense
Holding individual shares is prudent when investors seek outsized returns and understand the associated risks. Historical data shows that while the S&P 500 averaged 8% annually from 1991 to 2021, select individual stocks have delivered substantially higher returns, making them attractive for informed investors.
Understanding the appeal of individual shares
The allure of individual shares lies in the potential for significant capital gains. For example, Apple shares appreciated by approximately 43% annually from 2000 to 2020, vastly outperforming the broader market. However, this high reward is paired with higher risk, distinguishing individual stock investment from broader index funds, which offer diversification and stability.
When individual shares outperform
In instances where the market is experiencing volatility, individual shares can outperform. Consider Tesla, whose stock price surged by over 700% in 2020, a year of substantial market upheaval. Such stocks can provide robust returns when carefully selected, making them a compelling option for those willing to conduct in-depth research and accept greater risk.
Assessing diversification and risk
One of the primary risks of holding individual shares is the lack of diversification. An investor heavily concentrated in a few stocks may experience significant losses if those companies underperform. In contrast, a diversified portfolio, such as an index fund, spreads risk across many companies, reducing the impact of any single stock's poor performance.
The role of investment horizon
The investment horizon plays a crucial role in deciding whether to hold individual shares. Investors with long-term horizons may ride out volatility and are more likely to achieve gains from individual stocks. Historical data from 1991 to 2021 suggests that patience can yield substantial returns, but timing remains critical, especially near retirement, where sequence risk, discussed in our retirement risk analysis, becomes pertinent.
Comparing returns: stocks vs. funds
While index funds typically deliver steady, moderate returns, individual stocks can offer much higher gains. An analysis of the 50 largest U.S. stocks shows an average annual return of 12% from 2000 to 2020. However, only a fraction outperformed the market. Thus, stock-picking requires acumen and foresight, unlike the broad and predictable gains of index funds.
| Investment | Return |
|---|---|
| Individual High-Growth Stocks | 20%+ |
| S&P 500 Index Fund | 8% |
| Dow Jones Industrial Average | 5% |
Regulatory considerations and privacy
Investors must navigate the regulatory landscape when buying individual stocks, which can be complex and varied by jurisdiction. Privacy concerns also emerge, as holding individual shares requires transparency in transactions. Our privacy guide outlines considerations for protecting personal financial information in such endeavours.
Investing in technology shares
Technology shares often represent a high-growth opportunity. For example, shares in companies like Amazon or Alphabet have seen exponential gains over the last decade. However, the desk reminds investors of the inherent volatility of tech stocks and the necessity for meticulous analysis. Our Noruvo review offers insights into platforms that assist in evaluating these complex investments.
Consideration for active traders
For the active trader, holding individual shares may present frequent opportunities for gains. Trading platforms provide tools and analytics, as reviewed in our platform comparison. Traders benefit from understanding market signals and trends to exploit short-term price movements. However, this approach requires vigilance and a keen understanding of market dynamics.
Questions readers ask
What are the risks of holding individual shares?
Holding individual shares involves higher risk due to lack of diversification. If a company underperforms or faces financial difficulties, it can significantly impact an investor's portfolio. Diversified investments like index funds mitigate this risk by spreading exposure across various stocks.
How can I choose the right individual stocks?
Choosing the right stocks requires thorough research and understanding of a company's fundamentals. Investors should consider financial health, industry position, and growth potential. Tools and platforms that provide detailed analytics and market insights can be invaluable in this process.
Is it better to invest in individual stocks or funds?
The choice depends on individual risk tolerance and investment objectives. Individual stocks offer the potential for higher returns but come with greater risk. Funds offer stability and diversification. Investors should balance potential returns with their ability to endure market volatility.
The desk's view
Holding individual shares can be rewarding for those with the knowledge and risk tolerance to manage such investments. While the potential for high returns is enticing, it is tempered by significant volatility. Those considering this path should ensure a comprehensive understanding of market conditions and personal financial goals, always aligning with a strategic and informed approach.