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How Much Stock From One Company Is Safe to Own?

How Much Stock From One Company Is Safe to Own?

| September 15, 2021
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It’s no secret that certain companies dominate the stock market year after year, catching many investors’ eyes. We get it, they’re hard to ignore! For this reason, many individuals are asking themselves: How much stock from one company is safe to own?

Unfortunately, there is no one-size-fits-all answer. But what we do know is that individual assets carry increased risk. Let’s see why.

The Risks of Investing in a Single Stock

Individual stocks are much riskier investments than a well-diversified portfolio. Why is that?

Here are a few kinds of added risk when you hold a single stock, or a significant amount of a single stock:

  • Management risk: A company may have a stellar history of management, but it isn’t a guarantee that won’t change in the future.  A change in management, like a CEO stepping down, can cause a significant shift in how the company performs and, in turn, impact the stock.
  • Industry-specific risk: When you are heavily invested in one stock, you are also heavily invested in that industry. If the industry you are concentrated in takes a hit from world events or rising costs, your individual stock can also go down in price.
  • Legal risk: If the company you invest in gets into legal problems, it can cause the stock price to drop.
  • Technological change risk: The current technology may become irrelevant in the near future. It is impossible to predict these changes, and if major advancements in technology occur, it could render an entire industry obsolete.

Lastly, you also run the risk of the emotional rollercoaster when the company you’ve invested in doesn’t do well. 

When you have most of your money concentrated in one stock, if something goes wrong, you stand to lose a significant portion of your investment. But this can be avoided.

The Importance of Diversification

Diversifying your portfolio allows you to be exposed to industries that appeal to you without the danger of putting all of your eggs in one basket.

There are many factors outside your control, such as future company performance, industry changes, and world events.

Diversification means spreading your portfolio across different types and sectors of investments. This reduces the risk that you will lose all your money to one bad investment. 

And at Match Point Financial, we understand how to help you diversify your investments in a way that is suited to your individual circumstances.

The Bottom Line

With any asset, you need to consider your risk tolerance and goals before making an investment. There are no investments that are risk-free, but diversifying your portfolio can help you minimize the risks of owning an individual stock. 

So when it comes to how much stock from one company is safe to own, the answer depends on your needs, goals, and risk tolerance. 

We Can Help

Coming up with a financial plan you feel confident about can be challenging on your own. But when you work with us, you can rest easy knowing that you have a trusted partner by your side. 

To create a comprehensive financial management plan, we do a full intake of your goals, and continually monitor your plan to ensure you stay on track. We believe in transparency and clear communication, so we will always walk you through every step of the process. 

To get in touch, give us a call at 352-207-8014 or schedule a complimentary phone call using our online calendar.

About Chris

Chris Reed is a financial advisor and the founder of Match Point Financial. Since 2002, he has been helping people make informed choices with their money and pursue their financial goals and objectives. He started his career with MetLife and has continued seeking to provide his clients with the best possible service through A.G. Edwards, UBS, and, finally, through partnering with Cetera Advisors LLC and forming his own independent firm in 2010. Learn more about Chris by connecting with him on LinkedIn or register for his recent webinar: Are Your Old 401(k)s Collecting Dust and Losing You Money?

Financial Advisor: Securities and advisory services offered through Cetera Advisors LLC, member FINRA/ SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.

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