Diversification is a basic investment strategy that spreads out risk over a number of different investments. If your portfolio contains only low-risk investments, adding some stock is usually a smart decision. Deciding which companies to invest in takes time and energy. If your portfolio is already diversified and you want to add stock, there are some benefits to gain from investing in a single company.
Investing in a single company simplifies the process of researching and managing your stock investment. Whereas another investor might spend time researching companies and deciding how to allocate limited investment money among multiple businesses, investing in a single company is a faster and easier way to get into the stock market, especially if you know which company you want to invest in ahead of time. As an ongoing investment your decisions will be limited to how to receive dividends and when to sell, while investors in multiple companies will have many more decisions to make.
If the company you invest in is also the one you work for, receiving stock options is a good way to add stock to your portfolio easily and for free. Stock options offered as performance or signing incentives can round out your portfolio and leave you free to spend your investment money elsewhere. Keeping the stock and having a stake in your own company, or waiting for it to fully vest, also creates a direct relationship between the work you and your colleagues do and the value of your investment.
Getting in Early
Investing in a single company doesn't have to mean buying stock in an established business. Making a personal loan to a small business is a way to get in early before other investors and growth makes it cost-prohibitive to do so. Small-business investments are available in a wide range of amounts and risk levels. While this option may require more research and planning on your part, it allows you to become a partner in a company you believe in or see value in before others do.
The advantages of investing in a single company create new investment risks that you need to be aware of before deciding how to allocate your investment money. In particular, investing in a single company means your investment success is tied directly to the value that other investors assign to that specific company. A lapse in management, the emergence of new competitors or a change in the company's business strategy can all cause your investment to lose value, with no other business investments to offset those losses.
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