I’m thinking of investing €10,000 in Ryanair shares. Is that too little to invest – and is there a better alternative?
– Margaret, Dublin
Update 30 March 2020: this article was written before the major market moves of recent weeks – but its perspective rings even more true now. If you’re interested in Moneycube’s view on buying the dip, you can read on here.
When you’re investing your personal wealth, it’s good to take a global view. It might be worthwhile owning a piece of some home-grown businesses, but we’d only recommend you do so as part of a wider portfolio.
€10,000 is certainly not too small an amount to consider investing. But it’s worth thinking twice before using it all to buy Ryanair shares.
All your eggs in one basket
The main problem with singling out a particular company is that all your eggs are in one basket.
Yes, there’s a chance you’ll hit the jackpot. But you’re also exposing your money to more risk than is necessary.
Airlines in particular are known for being very cyclical businesses, with heavy exposure to the performance of the global economy. If activity slows, businesses stop flying to meetings, and consumers cut back on foreign holidays. But airlines find it harder to cut back on flights. And that hits their profits.
Investors in Ryanair have certainly had a few bumps on the road. They have taken off and landed back where they started over the last five years, as this chart shows.
The funds alternative
If you can spread your eggs in many baskets, you cut your risk, and give your savings many chances to grow.
That’s why we believe that the cornerstone of most investors’ portfolio should be a multi-asset funds. These funds hold several kinds of investments, from company shares, to commodities like gold, to commercial property and more.
If you’re investing over the longer term, a pure equity fund might give you the growth opportunities you’re seeking. It’ll likely hold positions in twenty or more companies, so you’ll still be spreading your risks nicely.
That’s great, but I’d still like a piece of Ryanair
Having said all that, investors in Ireland often take a special interest in Irish business success stories.
So there’s certainly space for some share-based investments as part of a broader portfolio. You just need to be alert to the company’s specific risks and opportunities, and investing over the longer term. For example, you could split your investment 80:20 between funds and shares.
We’d be happy to help you put together a mixed portfolio with room for some of your chosen shares.
Question of the month is a new regular feature on the Moneycube blog. If there’s an aspect of investing or pensions that you’d like us to cover, drop us a line.
Please remember the comments are for general informational purposes only and are not intended to be relied upon as financial, tax or other professional advice.