What is the #1 stock to buy?

I always get nervous when I hear someone ask me, what is the one stock I should buy right now? I know the person wants to make money and looking for an easy answer.

The answer is there are no easy answers when it comes to investing.

Over the last 19 years I tell people they need to have an investment plan, a strategy in place before they invest a dime.

Questions:

(1) What is my risk tolerance? How would I feel about a 30% or greater decline in my in investment?

(2) Do I need this money within the next two years? If yes, it should not be in the market. It should be in US Treasury Bills (Federally tax exempt), bank CDâ€™s, or FDIC backed cash (savings accounts). Not much interest, but you don't lose money you are going to need.

(3) Is this money earmarked for retirement? If Yes, consider IRA or ROTH IRA account.

(4) Does my job offer a 401(k) or other retirement plan? If yes, sign up and if the company has matching contributions, be sure to at least contribute up to the match. Pre-tax items such as 401(k) contributions lower the amount of tax that is taken out of your pay check.

(5) What is your debt situation right now?

(6) What are your assets and income?

(7) Do you have expenses coming up?

(8) Do you have job stability?

(9) Your age?

(10) Dependents? married/ single?

There are many question I ask people which can take several hours to go over before we put a dime into any investment. Beware of people who sell you on some hot tip, or trend, or who have no financial qualifications to provide advice. They may be right once or twice or in the short run, but long term they often blow up (RE: the 1995-2000 amateur day traders).

Comments with respect to previous posts:
Why I am cautions on high yield bonds and all lower (credit) quality bonds:

1.Continued high credit risk in the financial markets could make it more difficult for some companies to pay.

With respect to prev post: Now, GM may or may not default on these bonds, but they are trading at a discount to par. Meaning the price (principle = your investment) has gone down in value if you bought them when they were issued.

Next, these bonds have a low credit quality (B-/Caa1) - high yield bonds also known as "junk bonds" which means they are considered much higher than average risk.

I would not be a buyer of bonds in general right now, and would not buy low credit quality bonds because there is a higher than normal default risk. A default means you could lose all your money.

GM Bonds stated in above post:
General Motors Corp.'s bonds due 2033 with an 8.375% Coupon
http://www.shibuimarkets.com/perl/instr?iid=10448
http://www.bloomberg.com/apps/news?pid=10000087&sid=aI6GjqdYlG2w&refer=top_world_news
http://www.washingtonpost.com/wp-dyn/content/article/2005/06/18/AR2005061800121.html

Education and Bond Quality
http://www.morganstanleyindividual.com/markets/bondcenter/school/risk/default.asp

2.Why I am not a buyer of AAPL. I recommended AAPL in 2007 when it was in the high 80's, and traded it many times and did well. I sold the stock, albeit a little early when I couldnâ€™t justify the price any more. I think itâ€™s a little overvalued right here, and all the good news has been factored in the stock. It may go higher after a good pull back, but I wouldnâ€™t put all my money in it, or one stock.

3.Commodity prices are high and prob will continue in general due to demand by China and India. I would not be buying oil and gas companies. Oil prices are likely to come down in a US recession (which we are already in one). This is a speculative industry, and although there is money to be made I would not suggest this as a first investment for anyone.

As far as getting started, Iâ€™d suggest going to an investment firm who will "hold your handâ€ ( walk you through and educate you) on what you need to know. There is a lot of info out there on the net to help educate you; but I find it is for people who are really willing to do their homework. It's useful and many people can do it on their own, but they often fall apart when the market hits a big decline. A trusted advisor with 10 or more years experience who understands how markets work is a good start.

A basic investment strategy I share with many people.

Consider indexing part of your investment portfolio, and if you donâ€™t have much to start (Under $5,000), then index it all. I donâ€™t suggest putting it in all at once. Take the total dollar amount and put maybe 5-10% in now, and the rest over the next 12 months in even dollar amounts on the exact same day. This is called, dollar cost averaging.

About dollar cost averaging
http://en.wikipedia.org/wiki/Dollar_cost_averaging

Without knowing your specific situation I cannot officially make any recommendation. In general terms, I might look at the S&P 500 Index (SPY) and NASDAQ 100 Index (QQQQ).

S&P 500 Index (SPY)
http://finance.google.com/finance?q=spy&hl=en

NASDAQ 100 Index (QQQQ)
http://finance.google.com/finance?client=ob&q=QQQQ

With a little money you can own 500 of the largest companies in the S&P 500 Index â€“ diversified, and the same goes for owning the largest 100 stocks listed on the NASDAQ index.

Historically 80% of mutual fund managers underperform the indexes so, I tell people to own the major indexes as part of your long term investment strategy. They are low cost to maintain. I would not buy an index fund.

By buying the index stock, you own shares in the index, and ongoing costs are often lower than most mutual index funds. They are simple, and you donâ€™t have to watch them every day.

I expect the market to be under continued pressure (likely go lower), but dollar cost averaging over the next year in a couple major indexes and a 10+ year time horizon, I think you shall be pleased.

Save $
Use a ROTH IRA for after tax money and put cash in that account and buy your index stocks.

Roth IRA FAQ
http://en.wikipedia.org/wiki/Roth_IRA

Good Luck!

Disclaimer: News and data herein are derived from sources believed to be reliable. Their accuracy or completeness is not guaranteed. The information herein is not intended to be investment advice, and is for reference purposes only. Always seek a professional tax adviser when making tax-related decisions.