Should you choose and buy individual stocks on your own? Thats the first question you should ask before starting to build your portfolio. Mutual funds, which bundle stocks, have professional investment managers and a balanced asset allocation strategy to help buffer the risk of problem securities. Youll have no such safety net when owning one or just a handful of stocks. Thats why its so important to think the whole process through before placing your first order.

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Determine Your Risk Tolerance

Are you simply playing the market with money you can well afford to lose, or are you making a last-ditch effort to fatten your nest egg before retirement? Single stocks are going to be more volatile than mutual funds, because there arent dozens or hundreds of other stocks to counterbalance the day-to-day price fluctuations. Can your investment budgetand your mental healthtake that kind of volatility? Imagine the worst-case scenario: All of your stocks flatline. Could you shrug it off as a learning experience, or would it be financially devastating?

Match Stocks to Risk Profile

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