Common Stocks Essay Example | Topics and Well Written Essays - 750 words

Common Stocks - Essay Example An active investor has to constantly monitor the trends of the stock market. It is true that if some investments do poorly, others can compensate the loss but such a portfolio has to be prepared in consultation with the investment experts as mere hunches cannot be relied upon. Investing in a diversified portfolio should be indulged in only if it is a substantially large investment, as otherwise the transaction cost would be too much. A small investor is best advised to go for mutual funds in order to avoid high transaction charges, stock commissions and other costs of a diversified portfolio6. The person who does not diversify is averse to risks and invests in secure and reputed stocks expecting to reap a steady yield. Such investors usually belong to categories whose investment goals are sometimes based on the immediate tax saving requirements. The investor who is taxed at high rates should choose investments subject to full or partial tax exemption, such as government securities and bonds. There are others who tend to stay with their chosen best performing stocks and make a steady income from them.2 People who have less appetite for risk and want a steady safe flow of income are the ones who don’t diversify much. For such people bonds are the most appropriate investment instruments. Diversification is a way to limit risk but it is not necessary. Small investors cannot indulge in diversification as the cost would be too high. If at all, small investors can diversify by investing in mutual funds which are handled by experts. Generally investors who are experts in the stock market and have the time and resources to actively follow the stocks, charts and are abreast with the latest investment strategies are capable of making informed decisions and sticking to the best performing stocks and have less need to diversify. They usually stick to their shortlisted best performing stocks and reap the profits over a long period of time. The government of any