This occurs because when you combine assets, you are diversifying your unsystematic risk, or the risk related to one specific stock.
You get this diversification because you buy stocks that have a low correlation to each other so that when one stock is up, others are down.
Why are single stocks high risk?
Investing in only a handful of stocks is risky because the investor’s portfolio is severely affected when one of those stocks declines in price. Mutual funds mitigate this risk by holding a large number of stocks; when the value of a single stock drops, it has a smaller effect on the value of the diversified portfolio.
Is it worth buying a single share?
In short, it doesn’t matter how many stocks you are buying. It’s the quality of the stock that is more important than the quantity. If the ‘market price’ of the company is high, however the company is good and the valuation is decent, then even buying 1 share makes sense and is worth it.
What are the risks of the stock market?
Systematic risk is the risk related to the stock market as a whole. Factors affecting the whole market might include economic growth, recessions, inflation, interest rates, currency fluctuations, etc. These factors are unpredictable yet create volatility and risk in the stock market.
Is it OK to buy one share of stock?
Absolutely you can invest in just one share of a stock — and it has become far more practical to do so than it used to be. Now that most major brokers have done away with trading commissions, it is feasible for you to start investing with very little money.