What sets investing in individual equities apart from index fund investment?

Question

Could someone assist in clarifying the distinction between investing capital in individual stocks and investing in index funds?

Answer 1

Investing in individual stocks can be compared to betting on a particular horse, the specific company, which is much riskier as the return is only based on the performance of that company. Index funds, in contrast, monitor a wider market average such as the ‘S & P 500’ while allocating your asset in several companies which reduces the risks involved with the dependency on the performance of one company in particular.

Comments

My portfolio for the past 10 years has always been self managed and I own 3 shares of Berkshire Hathaway Class A stock (BRK:A) which I bought in at about $17,000 during the mid 2000's, I'm currently liquidating some of these positions to incorporate new Gen. Stocks. Open to any recommendations.

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Great analogy with the water.
Remember, everyone, you can also invest a large portion of your money into cups (an ETF) and a smaller portion into your favourite bucket/s.