Spreading Out Your Investments
May 3, 2009 by Rick Amorey
Filed under Stock Market
The science of investing and trading requires the understanding of many complex things should you plan to make it in that venture. If there is only one advice that I could give to someone who wants to go ahead and invest, though, it is this: Don’t bet it all on one fight. Spread out your portfolio; don’t settle for just one.
I fully understand that many people find the prospect of multiple investments close to impossible. As much as you want to spread out, you have to start in that first investment somewhere. Unfortunately for you, these investments usually start at a high price. In many cases, that price is too high for the average American. So, many beginning investors end up in the trap of putting it all in one stock anyway. This is a potentially devastating move. Everyone has experienced bad purchases in their careers. If you truly are shoehorned into that one investment, make sure that the potential loss is not going to be the end of your savings.
One alternative is to join in on a mutual fund account. Basically, mutual fund accounts are controlled by companies that collect investors? money. This collective sum is then used to make investments that can’t otherwise be afforded by any of the investors on their own. The company managers take the mantle of brokers that choose the best investments within the interest of their clients. The risk here is that if a manager screws up, then he or she will end up burning other people’s money.
Of course, you could also opt for a bond investment. By lending money to other entities with interest, bonds are preferred for the relative security of the transaction. Unfortunately, bonds carry with it the disadvantage of taking forever to see an income, and it will only yield a desirable profit if you started investing really early in your life, or if you trade bonds that have not yet reached its maturity.
To conclude, the goal of this article remains the same. Beginning investors should learn to spread out, either within the same type (like having multiple stocks), or by spreading your portfolio wider and having money on stocks, bonds, and mutual funds. It’s like storing your fruits in more than one basket: When one investment goes bad, the others will not be harmed.
