Bored with index funds? Here are tips for buying individual stocks.

You heard from a friend who bought some stock in Nvidia or Amazon or Apple when it was cheap, and now those shares are worth five or six figures.

Those are inspiring stories. But how much can you safely invest in individual stocks?

Financial planners advise armchair investors and retirement savers that the smartest move is usually to buy shares of index funds, the kind that track the performance of broad stock indexes or the entire market. Single stocks tend to be much more volatile.

But millions of investors buy shares of individual stock, and lots of them have success stories.

Is there a place for individual stocks in your retirement portfolio? If so, how much is too much? We asked several investment experts.

Ordinary Americans are passionate about investing in individual stocks. A recent survey by the BlackRock Foundation and Commonwealth found that 54% of low- and moderate-income Americans (those earning $30,000-$80,000 a year) invest in capital markets, and that new investors favor single stocks over mutual funds and ETFs.

Investors may watch YouTube and TikTok videos from influencers who claim to have can’t-miss stock picks. They troll the internet for recommendations from The Motley Fool and Morningstar. Then, they sit back and wait for a stock to take off.

“There’s a certain element of fun to this,” said Zachary Rayfield, head of goals-based investing research at Vanguard.

Ready to buy some individual stocks? Here are a few tips.

If you invest in index funds or target-date retirement funds, your investment will probably track the market as a whole. Stock indexes do well in some years, poorly in others, but they are far less mercurial than individual stocks.

With single stocks, you’re likely to see big swings, and not always up. If you’re just starting out, experts say, it’s wise to invest only a small share of your portfolio in individual stocks. That’s especially true if you’re investing with your retirement savings.

“I think everyone’s retirement should be built on a foundation of index funds,” said Robert Brokamp, a senior retirement adviser at The Motley Fool. “And then you can gradually move into individual stocks,” committing “maybe 5%” of your portfolio. “And then you might find that you absolutely love it, and you can gradually increase that percentage.”

However much money you invest in single stocks, investment experts say, try to avoid owning too much of one stock.

“A simple rule of thumb is, do not let any one position in your portfolio account for more than 5 to 10% of the overall value of your portfolio,” said Caleb Silver, editor-in-chief of the financial journalism site Investopedia.

Overconcentration can happen by accident. Let’s say you bought some shares of Nvidia a few years ago, and you watched them multiply tenfold in value. Today, those shares might make up a large share of your holdings.

“Many of our members have 30% of their portfolio in Nvidia,” said Brokamp, whose site has recommended the stock for years.

The problem with individual stocks is that “you’re vulnerable to steep declines of your portfolio if one of them goes down significantly,” Silver said.

That’s less of a problem if the stock represents 5% of your portfolio, more concerning if it’s 30%.

“Individual stocks can be a great way to complement a well-diversified portfolio, but it’s important to ensure that no single security overshadows your overall mix,” said Ryan Viktorin, vice president and financial consultant at Fidelity Investments.

Diversification, in investment parlance, means holding different kinds of assets. You can diversify by holding stocks in different sectors, large and small companies, American and foreign markets, and by holding things that aren’t stocks, like bonds and money market funds.

If you’re devoting only 5% or 10% of your portfolio to single stocks, you don’t necessarily have to worry about diversifying those stocks.

To Silver of Investopedia, “it’s better to concentrate on 5 to 10 stocks that you believe in, that have a track record,” and build sizeable holdings in those companies.

“If you have invested in any of the top 10 companies in the S&P 500 over the past five years and you have built positions in those companies, you have outperformed the stock market,” Silver said. Case in point: Nvidia.

Brokamp of Motley Fool suggests a broader approach.

“You should own at least 25 stocks, and they should be diversified,” representing different types of companies, he said.

Silver’s approach gives you larger stakes in fewer companies. Brokamp’s gives you more diversification, but you get a smaller stake in each stock.

One axiom of investing dictates that actively managed funds often underperform the market as a whole. Simply put: It’s hard to beat the market by picking stocks yourself.

And that rule surely applies to amateur stock pickers.

“If you do this yourself, you’re becoming an active manager,” said Rayfield of Vanguard. “And a lot of active managers don’t outperform the broader market.”

Savvy investors sell off diminished stocks at a loss, then use the loss to offset gains on other investments at tax time, a technique called tax-loss harvesting.

Paring down underperforming stocks can leave an investor with an overly rosy view of their success.

“If we’re selling the losers, sometimes we get a little high on our horse about what our capabilities are,” said Colin Day, a certified financial planner in St. Louis. “We forget the losers. We only remember the winners.”

If you invest in a significant number of single stocks, Brokamp said, expect them to drift in different directions, some rising, some falling. The returns won’t resemble the path of a broad index fund, which captures the collective movement of many stocks.

“Many of your individual stocks will be duds,” Brokamp said. “It’s the handful of successes that will drive your return.”

This article originally appeared on USA TODAY: Bored with index funds? Tips for buying individual stocks.