Life's Better Ideas

Occasional links to, and comments on, ideas that I think will make this a better world, and remarks about things that need fixing, too.

Location: Denver, Colorado, United States

Thursday, March 02, 2006

Lifetime stock pick

I was thinking today about investments, and this question came to mind: If you could only buy one stock in your entire life, what would it be? And my answer is IWM, iShares Russell 2000. The Russell 2000 is an index that tracks small-capitalization stocks, which are publically traded companies whose market value (outstanding shares times price) that is less than one billion dollars. Small caps generally perform better than the large and mid-caps, I think because they are more likely to be growth companies.

The iShares Russell 2000 is technically an Exchange Traded Fund (ETF), sort of like a mutual fund, and it trades on the American Stock Exchange under the symbol IWM. You can find out more about ETF's here. ETFs are usually safer than individual stocks, because you spread your risk over many companies and, for example, the entire fund never gets hit with things like accounting scandals, plant closures and fires, fraud, and missed earnings estimates, all of which can drop a stock 30 percent or more in a single day. IWM is more volatile than the S&P 500, which means it goes up and down more. Since the long term trend of the market is up, if's possible that you will do better with IWM than the SPY (S&P 500). You can find out more about IWM here. IWM is also very liquid, which means that you won't have any trouble buying or selling your shares. Right now, almost 30 million shares change hands every day.

Disclaimer: I own both IWM and SPY as of this writing.


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