Why you shouldn’t own (individual) shares

In April 2013 Harold Pollack a University of Chicago Professor was participating in a talk with personal finance expert Helaine Olen. During the talk he said, “that the best [financial] advice for most people would fit on an index card”. He then started to be asked for this index card, trouble was he was only speaking metaphorically. So, he took one of his Daughter’s index cards, grabbed a pen and created one, then took a picture and posted it online. From there it went viral and was featured on The Washington Post and Lifehacker.

Although mainly focused to the US, the key points are still applicable in the UK. For now, I want to pick up on one of the points;

“Never buy or sell an individual security (shares). The person on the other side of the table knows more than you do about this stuff.”

You may own some individual shares yourself, demutualisations in the past meant financial and utility shares are quite common holdings. It may be that your employer, past or present operated a sharesave scheme, which can be good to participate in. There’s nothing wrong with that in my mind as long as the risk involved is properly understood. Any company can have problems resulting in their share price plummeting and you need to know what impact that could have on you. Just remember what happened to BP, Tesco and Halifax share prices in recent times?

By having a large investment in one company you are taking a risk with part of your wealth probably far more than your comfort level. In the vast majority of cases you will be better served by investing in accordance with your attitude to risk, the risk you can afford to take and at the level of risk you need to take to achieve your objectives.

By investing in a portfolio of well spread different asset classes (shares, fixed interest etc.) you will not have all your eggs in one basket.