The Lesser of Two Evils: $SPY vs Individual Stocks $$
January 1990 through December 2009 (a period of 20 years) a total of 1,003 unique companies have been constituent members of the S&P 500.
Isn’t that crazy? This basically convinces me that owning individual stocks is very risky.
Dissolution of S&P500 is a lot less likely than bankruptcy of any given stock, and you’re at least guaranteed the dividend. Plus the options (for call writing) are very liquid and fairly priced.
But a company no longer being part of the SP500 doesn’t mean it’s gone belly up. The stocks are selected by committee, after certain financial criteria have been met. One bad quarter could disqualify a company. Doesn’t mean they’re a bad long-term investment. The committee also has to pick companies that reflect a broad range of US industries, so a great co could get booted if a new ‘industry’ emerges.
Definitely seems like a sensible approach, but there are still star performers that are equally safe bets as well.
“The profitability criteria are four quarters of positive net income on an operating basis. Sometimes, Standard & Poor’s will include a company that would be profitable except for a
loss due to a merger or acquisition.”
I didn’t say there weren’t star performers out there, but they’re hard to find and it’s still risky (all I’m saying).
Not that it ever kept anyone from trying.
Next, I’ll try to find how many companies went Bk vs the ones that are still being traded.
Kat,
I tend to agree, the ETF mitigates largely credit risk, leaving only market risk.
If you want the volatility, simply leverage up via Options.
jog on
duc