should I just invest in one stock?

Question

should I just invest in one stock?
I want to start investing in stock, but I don't know much about it. I bought a book. I'm trying to study it right now. Most of the information seem vague. It can't give me a definitive answer of what is good or bad.

What if I did this. I got $5,000 to invest. I got more money saved up of course.

I pick one of the highly rated stock like this one http://moneycentral.msn.com/detail/stock...

or a find another stock where the price is stable and generates a dividend.

And I put all $5,000 in that one stock and keep it simple. Is that a good ideal?

I keep hearing that I should diversify.

And mutual funds seem more complicated and they charge various fees.

So is it a good ideal to just invest in one stock in which I may have researched and found dependable?

Answer 1

Sandra: Don't invest in just one stock, and don't invest in mutual funds. Over a 3 year period, 95% of all mutual funds can't even beat the 3 generally-accepted benchmarks of performance (Dow, NASDAQ, S&P 500). Plus they kill you with fees.

Since you're new to investing, here are two priceless tips: Historically, the best 6 months of the year for stocks are November thru April. So keep reading and plan to buy in late October to get off to the best possible start. August and September are terrible times to start investing because they are two of the most volatile months of the trading year i.e. you are much more likely to lose money.

Second, go to the library and ask for a copy of Value Line Selection and Opinion. Value Line is a great publication for beginners because it is extremely trustworthy. Plus, they run three "Model Portfolios" every week--one for aggressive investors, and two for more conservative investors. If you've having trouble finding stocks to invest in, just wait for Value Line to add a new one to their portfolio and buy it yourself. With 5K to spend, you can invest in 5 stocks and spread your risk around fairly easily.

Email me if you need more info.

Answer 2

First of all there is the question about how much risk tolerance you have. You need to know that if you buy only into one stock - even if it is rated excellent - something can go wrong overnight and the stock crashes. Not always it is as bad as Enron but it can be as bad as Merck when they had to suddenly withdraw Vioxx.
And the more volatile a stock is the more risky the investment. Even pros lose money.

Safer is to invest in a diversified portfolio, and there are many aprpoaches - again depending on your risk tolerance (mixing large, mid and small cap stock, US companies, global stock, emerging markets etc...)
High risk means - you can win a lot but then also lose a lot.

If you want a more steady growth with less risk you should thinka bout having a diversified portfolio focusing on healthy large cap companies (the big ones), if they pay dividend that's nice too. Often dividend paying companies are "boring", don't grow fast enough, but also being thought about a less risk investment.

Mututal funds cost fees and picking good funds which generate steadily 8-10% per year after taxes and fees is an art. There are funds which generate as much as 30-60% but those are in sectors and they can go down with the same degree of loss. Those you need to monitor closely and the markets they cover.
The advantage is - if you don't know a lot yet about the stock market and you pick a fund from a decent fund company it usually does not lose it's value completely. It will go with the market. If it is a managed fund (vs. and index fund) then the manager will do all the buying and selling of the portfolio to grow the value.

Now - only a few managers are really worth that money, I have a few funds with Fidelity where the manager seems to do a decent job. They grow also in bad times.

Index funds are very low cost and only mirror the market without a manager. If you buy a cheap S&P Index fund like at Vanguard then your money will grow with the economy.

And then there are ETFs, which are funds which are traded like stocks.

I would suggest you visit the websites of some of the brokers Vanguard, ETrade, Fidelity and so on and do some reserach there. They all have great information available about all those and many other investments. You should spend a few days just on those websites do your research.

Answer 3

Never, unless you already have a diversified portfolio. Get Money Magazine, and read the WSJ "Getting Started" Column. The best thing that you can do is invest with a good discount broker (like Schwab) in a maximum of 2 diversified mutual funds....one large cap, and one international or a basic index fund. Reinvest the dividends.

When you have more money (you're saving and saving more, right?) and have maxed out your 401(k) or IRA, THEN you might determine you have a certain amount of money (like your sum mentioned) where you want to "play the market" by investing in individual stocks. Be advised it's a risky business - no matter how much research you have, it's all seond or third hand....and you're very far from the action whereever you are.

Case in point: I've been lucky in investing in both funds and ind. stocks, but my husband decided to take a big leap with exactly $5000 he had "credible information" on. That was three years ago, and the stock (before we sold it earler this year) was worth exactly $300....and because it was in his IRA, we couldn't write off the loss.

Be advised that the get rich quick schemes and people who got lucky you hear about are very rare. It's the millionaire next door who clips coupons and invests steadily that ends up stable.

Good luck.

Answer 4

This is not a good idea because you assume all the risk of that company. The reason folks say to diversify is that you spread your risk across multiple securities. Say you put your $5000 in company X and company X goes broke? You lost your money. Or say the stock loses 25% of its value (a more likely scenario than bankruptcy). You lost 25% of your money. If you buy $500 worth of 10 different stocks and one company loses 25% of its value while the rest do nothing, you lost Just $125 as opposed to $1250. That's why divesification is a big deal.

You're on the right track with the dividends. If you're into dividend paying stocks (which everyone should be), then you might consider looking at PEY (Powershares Equity High Dividend Fund). Its an ETF that focuses on buying interest in the top 50 dividend paying companies with a history of 10 consecutive years of dividend increases.

Hope this helps!

Answer 5

It's generally not a good idea to invest in in one stock (if that is all the money you have in the market). But you also don't have to do mutual funds if you want to do your own thing.

Low cost brokers can let you buy a range of stocks to start off- and then just invest in them regularly over time to build your own portfolio. Option 2 is many stocks can be bought from the company directly. Then you can (usually with no/low fee) continue to invest over time with no broker and again build your portfolio. Usually these deals are called DRIPS- dividend reinvestment programs. Research whether the companies you want offer this.

Mutual funds are fine, though. They do the work to keep things balanced and some, like Vanguard, charge pretty reasonable fees.

Final option: exchange traded funds- it's like buying a mutual fund but they are bought/sold like stocks. As a result you only have the fee to buy each time but no ongoing fees. Check out Charles Schwab and others for such products.

So don't just do one stock- there are too many other ways to go.

Answer 6

With only one stock you are probably best to do your research and pick the absolute best company you can find. Look at fundamentals, dividend yields and of course, try and pick a company you actually buy products/services from and you can easily see it growing.

You don't need to overdiversify with just $5,000. Pick a good company. Do this test:
1) DO you buy or use the services of the company?
2) Does the company give out a good dividend ratio?
3) Is the company growing?
4) Is it profitable?
5) How much debt?
etc, etc. When you find the absolute best company you can, go for it. It's only $5,000 and it won't disappear on you unless the company goes bankrupt...

What ever you do, do not overdiversify. With just $5,000 you will end up either getting poor returns or you will spend way too much money on brokerage fees from doing more than one transaction.

Answer 7

Everyone seems to hype mutual funds, I had a few and they were my worst investments. You will lose more by keeping your money in these funds. You can create your own diversified portfolio with greater return than some crappy fund manager will ever do for you. In these funds the growth is slow and the yields are below the stocks they invest in.
This is your money, don't be a fool and let some else make financial choises for you.

Answer 8

NOOOOO! Never invest in just one stock. What if this researched and dependable stock suddenly takes a nosedive in value? Then you have lost all your money. If you are conservative in your investing habits, then I would look into investing in several dependable companies, or I would consider a mutual fund too for someone just starting. A mutual fund takes care of the intimidating possibility of trying to diversify your own holdings. A mutual fund is administered by one company who invests in many companies. Your share of the mutual fund is made up by segments of several companies. You can choose mutual funds which focus on one market segment, or funds that track companies from several segments, and others yet that track the price of companies used in market indices like S&P500.
If you are very uncertain and just starting out, I would probably choose a index fund. Then as you learn more about the ups and downs of the market, you can branch into selecting investments which require more research and greater risk.

Answer 9

Since you don't know much about investing I would suggest putting your money into an Index Fund. Look for a no load fund. T Rowe Price and Vanguard among others have excellent funds to choose from.

Buying one stock is a very bad idea, you need at least five to be diversified.

Answer 10

NOOOOOOOOOOOOOOOOO!!!!!!!!!!!!!

You might want to consider a couple of ETFs to get started in investing....they trade like stocks, have lower operating expenses than mutual funds [additionally, there is no minimum $$$$$]
Close-ended mutual funds also give you this flexibility, while allowing you to diversify....

Check "yahoo" financial page under "ETFs"
Check "amex.com" for a listing that you can screen for returns
Check "CEFA.com" for more infomation

Diversification is not a bad idea, especially when getting started

I would suggest you investigate....DIA, MDY for overall exposure and then maybe a few sector/regional ETFs.

For dividends.....there are any number of ETFs and closed-end funds that will give you solid returns without the possible volitility of a single stock

You might look into a "dogs of the DOW" fund

Most "advisors" recommend that people put no more than 10% of their investments into highly speculative stocks/ETFs/pink sheet stock.......

I stongly recommend that whatever investments you go for....PLEASE use stops/stop limits....until you get more experience..

Good Luck