The best stock

Q: What’s the overall best stock?

R.Y., Burley, Idaho A: There’s no single perfect stock, as different kinds of stocks can be particularly well-suited to different investors’ needs.

If you’re in or nearing retirement, for example, you might reasonably seek out dividend-paying stocks, while those aiming to beat the market might focus on finding undervalued stocks or attractive growth stocks for their portfolios.

Risk-averse investors might favor established companies with dependable and growing revenue and earnings.

Remember that even if you identify what looks like a perfect stock, the unexpected could still happen. Years ago, few would have ever expected to see Polaroid, Eastman Kodak, Toys R Us, Pan Am, General Motors, Chrysler, Woolworth’s, Texaco or Sports Authority file for bankruptcy or go out of business. That’s why it’s important not to put too many of your eggs in one basket.

There is one single investment you might consider, though — a simple low-fee, broad-market index fund, such as one that tracks the S&P 500. It will immediately diversify your portfolio across many stocks.

Q: How can a company be “growing too fast to be profitable”?

C.D., Brookfield, Wis. A: It might be that the company is in a rapid growth phase and is therefore spending every dollar of income, and possibly even taking on debt, to fuel its growth. It might, for example, be spending a lot on hiring people, buying advertising or building more factories. This could work out if, over time, it spends less than it brings in and turns profitable. It’s not a guaranteed strategy, but it has worked for the likes of Amazon.com and others.