One of the most frequent questions Plauste receives from readers who are new to investing is some version of: "Should I buy individual stocks like Shopify and Royal Bank, or should I just buy an ETF?" It is a genuinely important question, and the honest answer requires confronting some uncomfortable evidence about how most investors actually perform when they pick individual stocks.
What the Data Actually Shows
A comprehensive study by S&P Dow Jones Indices, updated annually, tracks what percentage of actively managed funds — run by professional stock pickers with teams of analysts, Bloomberg terminals, and institutional access — outperform their benchmark index over various time horizons. In Canada, over the past 15 years, approximately 87% of active Canadian equity funds have underperformed the S&P/TSX Composite Index after fees. Over 20 years, the figure rises to 94%.
If professional fund managers with enormous resources fail to consistently beat the index, the statistical probability that a retail investor picking stocks part-time will do so is extremely low. This is not a commentary on intelligence or effort — it is a structural feature of competitive markets where prices already incorporate publicly available information.
But Individual Stocks Are Not Worthless
The case for ETFs as the default strategy is compelling, but that does not mean individual stocks have no role in a well-constructed portfolio. There are several scenarios where holding individual securities makes sense even for investors who primarily use ETFs.
First, tax-loss harvesting. ETFs make it impossible to selectively realise losses on individual positions. An investor who holds, say, 10 individual Canadian bank stocks can sell the underperformers at year-end to offset capital gains elsewhere, then replace them with a financial sector ETF to maintain market exposure. This is a genuinely valuable tax optimisation technique unavailable to pure ETF investors.
Second, conviction positions. Some investors have deep knowledge of specific industries through their professional lives — a physician who understands pharmaceutical markets, an engineer who understands energy infrastructure, a software developer who understands enterprise technology. In these areas of genuine expertise, it may be rational to hold concentrated individual positions alongside a core ETF portfolio.
The Recommended Approach for Most Canadians
A practical framework for most new investors: start with a core ETF portfolio covering Canadian, US, and international equities, and allocate no more than 10-15% of your total portfolio to individual stocks in sectors where you have genuine knowledge or conviction. This approach captures the efficiency of index investing while leaving room for the intellectual engagement that makes investing sustainable as a long-term habit.