No one can tell you which stocks will perform best, and anyone claiming they can is selling something

The honest answer to "what are the best stocks to invest in right now" is that professional investors with decades of experience and access to real-time data cannot reliably predict which individual stocks will outperform others over the next month, quarter, or year. If they could, they would be vastly wealthier than they are. The financial industry publishes thousands of stock recommendations every day, and research consistently shows that most of them underperform simple index funds that track the entire market.

This guide explains what the research actually says about stock performance, what strategies exist for people who want to pick individual stocks anyway, and what the trade-offs are between different approaches. It does not recommend specific stocks, because doing so would require predicting the future — something that cannot be done reliably.

Key Takeaways

  • Academic research spanning decades shows that most professional stock pickers underperform broad market index funds over periods of five years or longer.
  • Individual stocks carry higher risk than diversified funds because a single company's problems can wipe out a large portion of your money.
  • If you choose to pick stocks, you are competing against people with professional training, institutional resources, and access to information you do not have.
  • Time in the market historically outperforms timing the market — investors who stayed invested through downturns came out ahead of those who tried to sell before crashes and buy after them.
  • Costs matter enormously: trading fees, taxes on short-term gains, and the time you spend researching stocks all reduce your actual returns.

What decades of research show about picking individual stocks

The most cited study on this question is the SPIVA scorecard, published annually by S&P Dow Jones Indices. It compares the performance of actively managed mutual funds (funds where a professional manager picks stocks) against passive index funds (funds that simply hold all the stocks in a particular index). Over the past 15 years, roughly 90 percent of actively managed funds underperformed their benchmark index. Over 20 years, the figure is similar.

This matters because professional fund managers have research teams, access to company executives, real-time market data, and decades of experience. If they cannot beat the market consistently, the odds that an individual investor will do so are extremely low. The few managers who do outperform in one period often underperform in the next, suggesting luck rather than skill.

A separate body of research on individual investors shows that those who trade frequently underperform those who buy and hold. Frequent traders also pay more in taxes and fees, which compounds the underperformance. Studies of brokerage account data show that the average individual investor underperforms the market by roughly 3 to 4 percentage points per year.

The real costs of picking individual stocks

When you pick individual stocks, you pay costs that index fund investors do not. The most obvious is trading fees — though many brokers now offer commission-free trades, you still pay the bid-ask spread (the difference between what you pay to buy and what you receive when you sell). On a $5,000 trade, this spread might cost you $25 to $50.

Taxes are a larger hidden cost. If you hold a stock for less than one year and sell it at a profit, you pay short-term capital gains tax, which is taxed as ordinary income — potentially 37 percent at the federal level, plus state tax. If you hold for more than one year, you pay the lower long-term capital gains rate (0, 15, or 20 percent depending on income). Index funds held in taxable accounts generate fewer taxable events because they trade less frequently.

The third cost is time. Researching individual stocks takes hours per week if you do it seriously. That time has a value — it is time you are not spending on work, family, or other investments. If you earn $50 per hour, spending five hours per week on stock research costs you $250 per week, or $13,000 per year, whether or not your picks outperform.

Strategies people use when they do pick individual stocks

Value investing means buying stocks that appear underpriced relative to their earnings, assets, or cash flow. The investor researches the company's financial statements, compares its price to competitors, and bets that the market has mispriced it. This requires financial literacy and time. Warren Buffett is the most famous value investor, though even he recommends that most people buy index funds instead.

Growth investing means buying stocks in companies expected to grow faster than the overall economy. These stocks are often expensive relative to current earnings because investors are betting on future growth. Growth stocks tend to be more volatile — they can rise or fall sharply — and the bet on future growth can be wrong.

Dividend investing means buying stocks that pay regular dividends (cash payments to shareholders). The investor receives income from the dividend plus potential price appreciation. This strategy appeals to people seeking current income, though dividend-paying stocks do not necessarily outperform non-dividend stocks overall.

Sector rotation means moving money between different industries based on predictions about which will perform best. For example, buying technology stocks when you think tech will outperform, then switching to energy stocks when you think energy will outperform. This requires predicting which sectors will lead, which is difficult to do consistently.

Why market timing almost never works

Market timing means trying to sell stocks before the market falls and buy before it rises. It sounds logical, but it fails in practice because no one knows when the market will turn. Missing just the 10 best days in the market over a 20-year period cuts your returns roughly in half. Because the best days often come right after the worst days, and you cannot predict which is which, trying to time the market usually means you miss the gains while catching the losses.

A person who invested $10,000 in the S&P 500 on January 1, 2000, and held it through December 31, 2019, would have roughly $33,000 (accounting for dividends). A person who tried to time the market and missed just the 10 best days would have roughly $17,000. The difference comes from being out of the market on days you could not predict in advance.

This pattern holds across different time periods and different markets. The cost of being wrong about timing is usually larger than the benefit of being right.

The role of diversification and risk

When you own one stock, you are betting that one company will succeed. If it fails — due to management mistakes, competition, fraud, or bad luck — you can lose most or all of your money. When you own an index fund with 500 stocks, one company's failure barely affects your returns. This is diversification, and it is the closest thing to a free lunch in investing.

Individual stocks are appropriate only for money you can afford to lose completely. If you are investing for retirement or a major purchase, diversification through index funds or balanced funds is the standard approach. If you want to pick individual stocks, financial advisors typically recommend limiting them to 5 to 10 percent of your portfolio, with the rest in diversified funds.

The trade-off is simple: individual stocks offer higher potential returns but much higher risk. Index funds offer lower potential returns but much lower risk. For most people, especially those with limited time to research, the lower-risk approach produces better outcomes.

How to research stocks if you decide to pick them

If you choose to pick individual stocks despite the odds, start with the company's financial statements. Public companies file a 10-K (annual report) and 10-Q (quarterly report) with the Securities and Exchange Commission (SEC). These are free on the SEC's EDGAR database. Read the section called "Risk Factors" — it lists what could go wrong.

Compare the company's price-to-earnings ratio (stock price divided by annual earnings per share) to its competitors and its historical average. Look at debt levels, cash flow, and profit margins. Read recent news and earnings call transcripts. Talk to people who use the company's products. None of this guarantees you will pick a winner, but it reduces the odds of picking a company in serious trouble.

Keep a record of why you bought each stock and what would make you sell it. This prevents emotional decisions and helps you learn from mistakes. Many individual investors find that keeping a simple spreadsheet of their picks and outcomes teaches them more than any book.

Frequently Asked Questions

Is it ever a good time to invest in stocks?

Historically, the best time to invest was always "as soon as possible," because time in the market beats timing the market. People who invested during crashes — when stocks were cheapest — made the most money, but only because they held through the recovery. If you have money to invest and a long time horizon (five years or more), the research suggests starting now rather than waiting for a better price.

Should I pick stocks or use index funds?

Index funds are the default choice for most people because they require no research, cost very little, and historically outperform most individual stock pickers. Pick individual stocks only if you enjoy the research, can afford to lose the money, and understand that you are competing against professionals. Many successful investors use both — index funds for the core of their portfolio and individual stocks for a small portion.

What if I have a stock tip from someone I trust?

Even tips from knowledgeable people are not reliable predictors of future performance. If the tip is based on public information (news, financial statements), the market has probably already priced it in. If it is based on non-public information, acting on it may be illegal. Treat tips as ideas to research, not reasons to buy.

How much should I invest in individual stocks?

Financial advisors typically recommend limiting individual stocks to 5 to 10 percent of your portfolio if you are picking them yourself. This lets you learn and potentially benefit from good picks without risking your retirement or major financial goals. The rest should be in diversified funds aligned with your time horizon and risk tolerance.

Can I beat the market if I spend enough time researching?

Possibly, but the odds are against you. Professional investors with teams, data, and decades of experience underperform the market most of the time. The time you spend researching has a cost — it is time you could spend earning money or on other priorities. Even if you beat the market by 2 percent per year, you might be better off working an extra hour per week and investing the money in index funds.