Betting on a Stock
I once watched a successful salesman in the medical field who was five years away from retirement put nearly all his money in a stock he said was a “sure thing”. I tried to talk him out of it, but the stock was in the medical field and he felt he knew the industry well. All the docs he worked with were investing in it — he thought he should too.
The stock stagnated over the next few years. If he had put his money in a traditional diversified index fund portfolio it would have posted healthy gains. He didn’t lose money in the traditional sense, but he ended up over $100,000 short of where he would have been if he had invested in a diversified portfolio that was part of a long-term plan.
What Should You Do Instead?
As exciting as the thought of big gains may be, you need to think of such an approach like going to Vegas and betting your retirement money on red or black. If you like the thrill, do it with small amounts of play money, not with the bulk of your retirement funds.
Check out What Would I Do – Buy Individual Stocks or Stock Index Funds? for a thorough analysis that will help you understand the difference in risk levels of owning a single stock or an index fund.