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Okay, I started my Roth account one year ago. Put the $2000 in for 1999. I have added another $1000 for last year, so I still have another $1000 to contribute.

I bought only 2 stocks, one a tech stock, another was Home Depot. Of course, like many others, I've taken a couple torpedos amidships and am listing badly. But I'm still afloat.

My biggest question is how to diversify when you are just starting in the Roth. Since you can only contribute $2000 annually, it doesn't give you much room to operate. Assume I'm buying good companies, which is the better: buying stock in 10 companies and getting only a few shares of each, or, buying shares in 2-4 companies, and getting more shares? Remember, these are all good companies.

Try as I might, I haven't been able to find a satisfactory answer to this question. Once the Roth account increases (Lord I hope so) then the question is easier to answer.

Thanks for the assistance!

Mike
garp15@aol.com
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Mike,

I faced a similar problem if you read my post that came just before you. Ultimately this is your decision to make - but I am sure that you did not post on the board to hear that. :)

The conclusion that I came to was that I wanted to hold 4 companies in my Roth. The main reason I decided that is that it is easier for me to follow 4 companies than 10. Also to buy stock in 10 companies would take 5 years (assuming $1000 investment in each company). This is merely a personal preference but something to think about for you.

I also struggled with the diversification question. I too suffered last year since I bought 2 tech stocks(CSCO and MSFT). Fortunately I bought them each around $60/share.

This is my original plan for my ROTH:
1. Invest $1000 in CSCO and MSFT - each
2. Invest $1000 in WMT and KO - each
3. Invest $2000 in S&P 500 Index Fund
4. Every year after that I will invest in the worst performing of the above 3

This is the best way that I could think of to diversify. This will even out the risk in my portfolio a little. What I should have done was buy one tech stock and one other stock last year and this year. Oh Well! Live and learn.

Good Luck! I hope that this helps.
Stephan
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An S&P Index fund is a good way to build up money for stock purchases while still keeping your money in the market. It is a strategy that I employ often.
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It appears you are intent to buy and hold specific companies. IMO, DCA for this stratgey is too costly (re: commissions) if you buy small quantities in the tax sheltered account. If you were able to pay the commission with $$ outside of the account the story changes.

My strategy is to accumulate sufficient $$$ through an index first. Question then becomes when and how, even if, to distribute among a personal portfolio.

Timing is a concern for both strategies.

I believe both strategies have merit. The choice between diversification and growth is the personal decision that must be answered.
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