In this blog, we look at investing in one company as opposed to diversifying your portfolio by spreading your investment over a number of companies.
We see investing in a single company a little bit like a day at the races. Putting all your faith (and money) into one company, or one horse, is a bit like putting all your eggs into one basket. It leaves you with very little chance of getting the result you want. It would be like a football team relying on just one player to win them the game; and standing around doing nothing but passing the ball to that one player.
Even if you invest in one company and it does end up doing exceptionally well, there's still a good chance that its value could drop back down again before you retire – bringing you right back to where you started.
Often clients come to us and ask for our opinion on a particular company. But the reality is, it doesn’t matter what we think, or even what they think of the company. Regardless of its potential, investing in just one company will always carry the same high risks.
Having said that, if you do feel strongly about investing in one company, you should consider these rules of thumb before going ahead.
● Don’t spend more than 5% of your retirement savings on one company
● Be prepared to lose the money you invested in that company. If you are happy to do so, then go ahead.
Another way to think about investing in one company is to compare it to gambling. Some people simply enjoy gambling as a hobby, and we’re not here to tell people what to do. So, if you’re putting money into one company as a gamble, that’s different to putting your money into one company and fully relying on that money to grow your retirement fund. The chance of that happening is extremely low.
And on that note – perhaps going to the actual races for a gamble would be more fun than putting all your money into one company. At least it’s social, people are well-dressed, and best of all, they serve beer.
Dallas Davison, Michael Hogue and Ali Hogue.