Dave Ramsey's Warning: Individual Stocks Still Too Risky for Some Investors

Financial expert Dave Ramsey advises against investing in individual stocks, calling it 'a gamble.' This stance poses a problem for retirees who rely on dividend-paying stocks to cover their living expenses. To test Ramsey's rule, Johnson & Johnson (JNJ) was examined as an example of a safe-looking stock with a long history of consistent dividend payments.

J&J has raised its dividend payout for 64 consecutive years and has returned 186% over the past decade. However, despite its reputation as a Dividend King, J&J's revenue took a significant hit in Q1 due to biosimilar competition, which cut STELARA revenue by 60%. This event caused J&J's net income to drop 52%, proving that even dividend-paying stocks can be vulnerable to single-product risks.

Ramsey's warning about investing in individual stocks is particularly relevant for retirees who rely on a portfolio of chosen dividend payers to produce a reliable income stream. While broad funds may offer diversification, they also come with the risk of changing payouts and capital gains distributions, which can affect the overall return.