Page 263
where it had started. Today this company's shares are worth about
$0.0001 per share. Sure if you had gotten in at $0.03 and had managed
to sell it at its height, you would have locked in a sizeable profit. But you
would have also been an exception to the thousands of investors who
eventually ended up with the worthless shares. Now this may seem like
an extreme example but there are many more like it around. Some may
not rise and fall that quickly, others may not multiply in value to such
extent, but the point is that a poorly diversified portfolio, no matter
how safe the stocks, is risky and should be avoided. Here are some
diversification suggestions:
- Invest in diversified companies. A company like GE with
businesses in broadcasting, finance, plastics, jet engines, and
many more industries offers a diversified investment all
wrapped up in one stock.
- Pick stocks from a good variety of industries. Sure you can
invest in technology companies, but don't forget about the other
sectors too. There is plenty to choose from.
- Don't forget the dividend-paying stocks. Dividends are the
closest you can come to guaranteed returns when investing in
stocks.
- Invest based on your risk tolerance. If you can afford a few hits,
bias your portfolio towards growth rather than income. If you
want to stay on the safe side, consider more value stocks.
- If you don't want to do the research, consider mutual funds.
(We will cover mutual funds in an upcoming chapter.) …
|