Picking stocks and learning how to trade them isn’t the only part of being a successful investor. Equally important is finding out how to build a balanced portfolio so you don’t put your entire nest egg into one basket.
That’s why I encourage everyone to think beyond just a single company when plotting an investment strategy. After all, the best investors don’t just make one good stock pick, but find success by repeatedly identifying opportunities and avoiding areas of trouble. A diversified portfolio is really the only way to achieve this.
Here’s the good news: If you have a 401(k), you already are diversified via the nature of this retirement program’s mutual fund investments. Mutual funds are called such because they consist of a host of stocks, bonds and other investments that are mutually held among everyone who pays into the fund. Think of it this way: Instead of 100 investors each investing $5,000 in one stock, a mutual fund invests $500,000 in 100 stocks, then splits the profits among those 100 participants.
If you have an IRA that allows you to buy both mutual funds and stocks, I strongly advise you maintain a handful of mutual funds to provide stability and diversification. You can build a diversified portfolio on your own, of course, but that requires a level of sophistication that is far beyond what can be imparted in my 12,000-word ebook.
If you are starting from scratch, without a penny in the stock market, I won’t discourage you from buying just a handful of stocks and learning to trade. I truly believe in the methodology explained in this book, and I think a savvy investor can build a great portfolio using the free resources explained here. But understand that kind of investing is very risky.
Yes, it would be nice if you invested your life savings in that one stock that just went up 35% in two months. But it would be tragic if you put everything into a stock that moved 35% the other way.
Check out a complete list of Investing 101 articles by Jeff Reeves for more on learning how to invest and pick stocks.
Also, for just 99 cents you can download Jeff’s e-book “The Frugal Investor’s Guide to Finding Great Stocks: 11 Free Resources to Help Beginners Identify Fantastic Investments.”
You can also buy a printed copy of “The Frugal Investor’s Guide” for $15.10 via online publisher Lulu.