Lately Jim Cramer has heard a lot of chatter surrounding the concept of single stock risk. It's the risk that anyone takes when investing—what if you buy the wrong stock and it gets totally clobbered. Should you avoid buying individual stocks all together?
"If you think that I scoff at single stock risk, you're wrong," the "Mad Money" host said. (Tweet This)
The risk behind investing in individual stocks is exactly why Cramer has always advised that the first $10,000 in savings must be invested into an index fund. This way you will have the ability to capture the American stock market progress in a way that is diversified, as with a fund that mimics the S&P 500.
"I know many people don't have the time, the inclination or the analytical abilities to make decisions about individual stocks and I don't want them to. But you shouldn't be denied exposure to stocks because of those handicaps, so an index fund is a very good proxy," Cramer added.
At the same time, Cramer does not want home gamers to become frustrated when stocks do not go their way. Cramer knows that there is a certain amount of luck when it comes to investing, and it is possible that everyone picks the wrong stocks sometimes.
"But who am I to tell you that you're too dumb or too poorly informed or too easily defeated by the big boys with their short-term trading edge to pick an actual stock or two, or more, after you've put away the requisite $10,000 into that index fund?" Cramer said.