Investing In Company Stock?

Dave compares investing in mutual funds as opposed to single stocks to the story of the tortoise and the hare. Slow and steady always wins.

QUESTION: Robin’s husband’s company has guaranteed that employees will make at least 15% on stock purchases over a two-year period.  Everyone in the company is telling her husband that he would be crazy not to do this.  Should he?

ANSWER: I wouldn’t do it.  If you look up this company’s stock and look at the 52-week high and the 52-week low, you’ll see how volatile the stock is in one year.  And you’ll see that the difference in the high and the low is almost always more than 15%.  At the end of two years, you could easily lose the gain that was guaranteed. 

If you absolutely want to do this, put no more than 10% of your retirement savings in single stocks.  Single stocks only average about 7% and mutual funds average 12%.  Chasing single stocks reminds me of the tortoise and the hare.  Slow and steady always wins.  Mutual funds will always be one of the best ways for you to win at wealth building.