[00:02] put that money into the stock markets. It could be $5,000, it could be $100, but let's just go with the thousands. And here's the million-dollar question. With that money, should you buy one great company with all that money, or
[00:17] should you diversify? Or is $1,000 just simply too small to worry about diversification? Now, I'll tell you that the correct answer is that it depends on what you're trying to achieve, and also your risk
[00:30] it at that. I want to share my honest perspective with you about what I think is best. So, let's get started. Okay, now, when most people get started in the stock market, they immediately ask, "What should I buy?" right?
[00:44] Now, before we answer that question, we need to take one step back. The first question that you need to answer is, "How much risk am I willing to take?" Okay, so here's the thing. If you invest your entire $1,000 into a single stock,
[00:58] like go big or go home, you can make much more money if things go as planned, right? But if things don't go according to of your money because it's going to be I mean, this is a risky option.
[01:12] Now, another option is to diversify by spreading your money across hundreds of stocks by investing in an S&P 500 index funds or ETF. So, it's going to be less risky, right? But you're not going to dramatically
[01:25] outperform the markets. So, that's what I mean, that's really what this ultimately boils down to. It's a trade-off between concentration and diversification. So, we're going to be covering both, but let's begin with
[01:37] diversification. And okay, I know that most people have heard of the term diversification, but I noticed that many people failed to truly understand it. Like they they they get it wrong, basically.
[01:49] Now, many people think that diversification simply means owning a what it is. So, for example, that you own Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, Tesla.
[02:03] And many people will look at that portfolio and they would say, "Wow, you're really diversified." But, are you? So, I just want you to think about what those companies have in common. Those
[02:17] are all large US companies. Many are influenced by the same economic conditions. Many benefit from similar trends. In other words, you own several different companies, but many of them
[02:29] share similar risks. So, that's why diversification, it's not simply about owning many stocks. It's about reducing risk by owning investments that don't all move for the same reason. So, that's a Now, I would
[02:42] Now, let's come back to the original question. You have $1,000, should you diversify? My answer is like this is my honest I would, especially if you're just getting started. And here's why.
[02:58] Okay, believe it or not, one of the biggest risks for new investors isn't choosing the wrong investment. I would say it's making an emotional would say it's making an emotional decision after that investment declines.
[03:10] about. I'll give you a real life example. Like this this is a common one. Imagine that you invest your entire $1,000 into one company, into one single And a few months later, let's just say they release their earnings report and
[03:23] it disappoints investors and the stock falls 30% in a short So, in this situation, your portfolio is going to go from $1,000 down to 700, Okay, in that type of situation, like how would you react? Would you calmly
[03:40] hold your investments or would you panic sell? investors find out that they have a much lower tolerance for risk when they have actual real money on the line. And I would say that's completely
[03:54] normal. Like, that's understandable. I get it. But you have to realize that investing isn't just about numbers. It's about emotions as well. people, but I'll tell you it's a real thing, and any experienced investor will
[04:10] tell you the same thing. And this is one reason why index funds and ETFs have become so popular, because instead of you trying to pick a stock that's going to be a home run, if you buy an index fund or an ETF, you essentially own
[04:23] hundreds of companies all at once. So, it's like you're buying a basket of multiple companies. Like, you can think of it like a variety pack. Like, that's what you're buying. So, for example, if you invest in a S&P
[04:35] 500 index fund or ETF, you're essentially buying a small ownership stake in approximately 500 of the largest publicly traded companies in the United States. So, you're simply investing in the overall market. That's
[04:48] what's essentially happening. Now, in this scenario, your fates will not be company or one stock, because your money's going to be spread across hundreds of stocks, which is going to reduce company-specific risk.
[05:04] So, if one company struggles, then maybe another in your basket may perform counterbalance it. So, historically, index fund and ETF investing has been a very successful strategy for long-term investors. Now,
[05:18] let me bring this to your attention. I just want to say that diversification is just want to say that diversification is not free. It has a cost. The benefit is obvious. You reduce company-specific risk, right? If one
[05:31] stock performs poorly, then it's not going to devastate your portfolio. But I drawback, and a lot of people don't talk about this. Now, imagine you put your entire $1,000 into a single stock, okay?
[05:45] If that stock doubles in price, then your returns will be extraordinary, right? But if that same stock represents only diversified heavily, you know, which would be $20 in this
[05:59] example, then if it doubles in value, then that's not going to be a huge win for you. So, that's the trade-off. Diversification reduces risk, but it Diversification reduces risk, but it also reduces your potential gains.
[06:12] automatically right or wrong. It just depends on what you're going for and your risk tolerance. So, what would I personally do if I were starting today with $1,000? Okay, if I was new to investing,
[06:27] I would probably keep things very simple. I would invest in a low-cost S&P 500 index fund or ETF. Okay, why do I say that? Because if I was inexperienced in the stock market or I didn't have the time
[06:41] to study individual companies, then I wouldn't know what I'm doing and I would be at a competitive disadvantage compared to other stock pickers. So, if I had $1,000 to invest right now and I was new to the stock market, then
[06:54] I would invest in VOO. VOO is an ETF that includes 500 of the largest publicly traded companies in the US with a single investment. Okay, so some people will comment, "Brian, what Why are you saying VOO
[07:08] "Brian, what Why are you saying VOO instead of SPY, instead of the spy?" Listen, VOO, spy, it's going to be the same thing. You're You're buying the S&P 500, so I would go with VOO or an equivalent ETF or index fund.
[07:22] I'm only saying VOO because it's got a lower expense ratio at 0.03%. So, that means that every $1,000 that you invest, they're going to charge you you invest, they're going to charge you a fee of 30 cents a year. Look, you can
[07:35] invest in VOO for just under $700. So, if you have $1,000, some people might say, "Brian, well, if that's the case, I can only afford one share of VOO. So, shouldn't I spread my money across several individual stocks
[07:48] instead? Listen, this is the way I see it. If you have $1,000 and you buy one share of VOO for $700, then you're going to have $300 left over, right? Then I would say, well, just save up
[08:02] another $400 and with your leftover $300 for a total of $700, buy another share of VOO in the future. Or another thing is that some brokerage accounts allow you to buy fractional shares. If that's going to be the case,
[08:18] then you could take your leftover $300 and buy a fractional share of VOO. interested in, I'm going to leave a link for you down below for two popular stock market brokerage accounts that allow you to buy fractional shares.
[08:31] can take your pick. They usually I mean, both of them they usually have sign-up bonuses and I just want to say that I personally have accounts with both of them. Now, let's just say that you've been investing for years now and you
[08:43] So, I'll say that now this is a different situation. If that's the case, then I think it would be appropriate to own a few individual stocks in addition to your index funds or ETFs. So, I'll just say that it depends on
[08:57] want to address this cuz I think this is so important. I mean, you'd be surprised how often I hear this. People they often tell me, hear this. People they often tell me, Brian, I only have $1,000 to invest.
[09:10] embarrassed about. Like, oh, that's not enough money. Like, oh, what's that difference. Well, I just want to tell you that I do not see it that way. So, personally, I believe that starting your
[09:23] investment journey with a smaller amount of money is actually a good approach. Okay, why? Why do I say that? Because you will have a lot to learn. And every successful investor has made mistakes and learned from them. And it's
[09:37] quantity of money. And I just want to share this perspective with you. The truth is that the first $1,000 you wealthy. What will make you wealthy is the
[09:50] So, I think it's just so important that you get started today even with a smaller quantity of money. Like you can get started just fine with $100. Like I'm being that serious. Again, the most popular stock market
[10:03] brokerage accounts allow you to buy fractional shares. So, what I would say is get started now. Contribute money to your account on a regular basis. Try to be consistent with that. And just let your account grow and
[10:16] compound. Like give it time. Be patient. This is how you build wealth. And if join our investing community on Patreon. have our private chat room. You can get your questions answered. And I'm going
[10:29] Thank you so much. And I wish you a very nice day. Take care.