If someone has 100K and want to buy stocks?

Question

Isn't it better if he buys many cheap stocks,which he believes has a great potential for growth than buying little expensive stocks such as (IBM...etc)?

I'm new to the stock market....so plz forgive me if the question seems silly

Answer 1

Ideally, you will spread your risk across a broad range of stocks covering the three types - large cap, mid-cap, and small-cap. You want to do that in proportions appropriate to the way the market is moving.

In addition, you need to determine whether stocks are good for growth or income.

Developing a sound portfolio requires a lot of experience and analysis. In general most individual investors do poorly if they invest in individual stocks. They cannot watch the market effectively, and they tend to make emotional decisions, selling too early or too late.

A better approach is index funds. These are funds run by large companies (Vanguard, Fidelity, T Rowe Price) that spread the risk for you by investing proportionally in all the stocks within an index. This means your money might be spread across hundreds of stocks. As the index moves up or down, so does your portfolio. These funds are controlled automatically by computer systems. Over time (10 or more years) they outperform managed funds and personal stock picks.

Unless you are a full time trader and want to do a lot of work to monitor your holdings, go with this type of fund.

Look for index funds like the Vanguard total stock market fund. You want funds that have no front or end loads; and have management fees less than 0.4% per year.

With this approach, you can expect to make an 8 to 10% return with low to medium risk. With individual stock picks, you might do well, but there is a high risk that you will lose money consistently.

Answer 2

Hi! Not a silly question at all. Lots of new investors get stuck on this one.

It's not the number of shares that matters. It's the potential of the company behind the stock. For example, with $100,000 to invest, you could buy 200 shares of Google or *one* share of Berkshire Hathaway. But most market-watchers think Google is overvalued, while Berkshire is actually considered to be *undervalued* relative to what the company is worth! Google might keep gaining for a while, but most people think it's due for a correction, so if you want to ride the Google wave and try to time it so that you get out before the fall and take your profits, that's all well and good. Berkshire is an old, established company that's not on a growth tear, but it will most likely keep slowly appreciating in value over the years. If you're a long-term investor, your patience will be rewarded for going this route. It's kind of a tortoise-and-hare thing.

This is not a recommendation to buy, by the way ... just an illustration. Just keep reading all of the analysis and commentary that's online about stocks, and you'll find what you're looking for. Good luck!

Answer 3

Your question touches on a large number of concepts in investing.

First of all - about price. $100 worth of a stock trading at $10 - i.e., 10 shares and $100 worth of a stock trading at $50 - i.e., 2 shares are worth exactly the same - $100.

The price of a stock is a terrible way to compare its worth to another stock, because its worth is dependent upon price, the number of shares outstanding, and the company's performance. This is why, in determining whether a company's stock is cheap or expensive, investors look at the P/E, the Price to Earnings ratio. So, lets say you're wanting to invest in a company that makes widgets, and you're looking at company ABC and company XYZ. ABC is trading at $20 and XYZ is trading at $30. But then you notice that ABC's P/E is 18, while XYZ's is 14. So ABC is trading at a price 18 times that of the stock's earnings, while XYZ is trading at only 14 times its earnings. So, XYZ is a better deal (provided other factors such as management & product lines are equivalent).

Secondly, I agree with the other answerers that diversification is good. I'd recommend a portfolio of no fewer than 5 stocks, and no more than 10. Diversify by sector, and don't put any more than 20% of your money in any one sector.

A portfolio of MSFT, AAPL, Cisco, Intel, and Texas Instruments would NOT be a diversified portfolio, because they're all Tech stocks. Get stocks in various industries.

Best of luck to you.

Answer 4

With the decline of the US Dollar and prospective Amero (more below) you need to be careful where you invest your money.... so you don't lose a large percentage of it. Many people in the stock market lost 70% of their retirement, for just one example.

Before investing in the stock market, or anywhere for that matter, you should go to this site and get a free copy of the ebook "Secrets to Economic Cycles". It will explain the best times to invest in different markets and the warning signs to get out, before it's too late. http://www.yourcoinbroker.com/EbookRequest.html

What will hold up in today's economy?

Gold is a great idea in today's uncertain economy (read on), but you need to understand the difference in stocks, rare coins, bullion, etc. Bars are bullion, only worth the weight of gold, whereas many pre-1933 gold coins will out perform any other gold investment out there.

Investing for Privacy, Protection and Growth

Talk to the expert and he will explain how certain coins outperformed others, even when they are all pre-1933, you need to know which ones will outperform any other gold investment. Whether you decide on bullion gold coins, gold bars, numismatic gold coins, etc., gold is the best option for privacy, protection and growth in today's uncertain economy.

Decline of the US Dollar

Gold is an excellent option, especially considering how the value of the US Dollar has declined 35% and is expected to decline another 40% in the next few years. The reason? We were taken off the gold standard. Just as the reason the Euro is doing so well? They are backed a percentage by gold.

The new proposed "Amero"

Have you heard of the Amero? That's the next biggie that will cause people to run and put all of their money in gold, not knowing how it is going to effect our economy, i.e. combining two "okay" economies with Mexico (US, CA and Mexico) and calling the new currency the Amero?

Here is a great site for so much information, and the author of the site is available 24/7 to answer any questions that you have. http://www.yourcoinbroker.com/value_of_t... You can call him any time and he will answer every question you could ever have without trying to sell you. What you do with that information is entirely up to you. Call the expert so you fully understand what you are doing before you go forward, whether you go through him or not, it doesn't matter, information here is key. Call Jim Burg Direct at [phone] or [phone].

He's the most knowledgeable in the business... no matter what your questions are with respect to any investment... that's all I have to say.

Hope this is helpful to you.

Answer 5

Find a mutual fund you like. It will be diversified. Do not forge ahead or you will loose your money. Investing in high growth stocks is very risky for a good reason most will never hit a payday. You only hear about the success stories. The failures are too frequent to mention. Put your money in a mutual fund -- at least 90% of it and if you want to gamble 10% then have a go and see where you are in a year.

Good luck and remember it is harder to earn than spurn.

Answer 6

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Answer 7

Cheap stocks are often cheap because they are not good investments.

The stock market is not totally efficient, in that it has sectors that go in and out of favor as institutional investors move funds around and small capitalizatiopn stocks are often overlooked by hte big money.

But small caps also have more risk than established large cap compamies.

I bought $250 of Proctor and Gamble and $250 of Exxon for my goddaughter 14 years ago at her birth,a total of $500. Those two investments in stodgy companies (with dividends reinvested) are worth $1,824 for the P&G and $2,357 for Exxon. Her father bought her $500 of internet stocks that are worth $125 today.

Answer 8

Better to have a mixed portfolio, you can then take the rough with the smooth. The stock exchange can go up and down even with strong companies like ICI. Even better use an advisor, who should know the market.

Answer 9

Early to bed, early to rise, diversify... diversify... diversify... the key to long-term success is a BALANCED portfolio. Study the stock market and learn all you can. Investing $100K without knowing what you are doing is insane. There is always a risk involved in investing, but you can reduce it by studying what you are supposed to be doing.

Answer 10

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