by Stacy Francis, CFP®, CDFA
Here’s something that happens all the time to me: somebody will mention they’re thinking of buying a certain “hot” stock. The next question is if I think that’s a good idea? I always give them the same answer – I don’t know.
Whether or not you should purchase a stock depends on quite a few factors. Is it the only stock somebody will own? Or only one of ten stocks? How diversified is their portfolio? How much money do they have invested? What are their life goals? No matter how good the market is some years, often the majority of stocks can go down. Let’s take the late 1990s.
The S&P 500 was up quite a bit if you remember, but this was because of a handful of good performers. Over 400 stocks were actually down. More recently, we all painfully remember 2008. Enough said about that.
The great advantage of a mutual fund is that it can invest in a lot of stocks. Some will go down. But the mutual fund can hold so many more stocks than you could possibly own yourself that it makes sense to leave the stock picking to the professionals.
Savvy Ladies’ Tip: Get savvy about mutual funds and be sure to read “Find The Right Mutual Funds” by Morningstar.