Monday, 19 May 2008 12:02
This past semester, I took a class about investing in the stock market. The April Question of the Month was to come up with a question for one of the weeks in May, and since I just taken this class, I wanted it to be about investing. My question is, "If you had $10,000 to invest, would you go for high-risk, volatile stocks, blue-chip stocks, or mutual funds? Would you invest some in each? If so, how much?"
Each of these has their pros and cons. The higher-risk stocks can have huge payoffs, or huge losses. Basically, what you are doing is gambling on that particular company being successful. For example, if you had invested in Apple when it first came out many years ago, you were (correctly) guessing that Apple would later be a dominant figure in the technological industry. If you were incorrect though, you would have lost everything you had invested. The rule of thumb when investing in high-risk stock is to not invest more than what you're comfortable "kissing goodbye."
Blue-chip stocks are stocks that have a very solid history, such as consistently pay out "dividends" (a dividend is a small amount of money that the company pays each stock-holder based off the number of shares the stockholder owns), or remaining a steady company even through hard times. The disadvantage of blue-chip stocks is that since it is low-risk, there isn't as much chance for big gain.
Mutual funds are a different kind of stock. Basically, it is like a company that invests in a whole variety of stocks in a certain industry. For example, say there is a mutual fund that invests in computer stores. That mutual fund would have some stocks of Best Buy, Circuit City, and so forth. It is well diversified, meaning that if one stock plummets, then the gains of the other stocks will keep your mutual fund balanced.