They should be diligent about diversification, establish their goals and determine their investment time line. It gobbles up a lot of capital, and it's illiquid. Stocks, he says, offer advantages of liquidity, daily valuations and ease of being able to spread the risk through a variety of equities. It's been so long since stocks had a down cycle, for example, it's easy to forget that it's a normal part of the market. And any investment in the market entails risk.
Companies do go bankrupt.
And 100-point swings in the market have become all too common. So investing in stocks is not for the faint of heart. In a down cycle, even the bluest of blue chips can put an investor's money at risk. But the story of IBM's slide in share value is a good example of why cutting risk through diversification is important. Ideally, diversifying means building a portfolio over time of 10 to 12 stocks in different industries.