Tesla CEO Elon Musk is the richest person in the world. While his net worth is slightly under $500 billion as of early December, he recently became the first person to have a personal fortune of over $500 billion after being the first to amass a net worth of $400 billion the year before. Much of his wealth comes from ownership stakes in various companies, including Tesla, an electric vehicle manufacturer. When Tesla’s stock value rises or falls, so does his net worth.
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According to Forbes, Musk owns 12% of Tesla’s available shares, representing around one-quarter of his portfolio’s total value. Given Musk’s incredible wealth, it’s tempting to invest in Tesla as he did. However, if you’re not careful, that strategy could prove costly.
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The Worst Way To Invest In Tesla
Investing everything in a single stock, like Tesla, can yield big rewards. A good quarter, an innovative technology announcement or a stable rise in value over time can make you a lot of money. However, even if you think Tesla is the car of the future and believe in Musk’s ability to lead the company, putting all your money into Tesla stocks exposes you to significant risk.
Every personal finance expert will tell you the key to good investing is diversification. This improves your investment portfolio’s overall performance while increasing stability. By spreading out your investments over stocks, bonds, commodities, cash and even cryptocurrency, you’re protecting yourself in case one area drops.
For example, earlier this year, Tesla encountered several challenges. Musk took the helm of the controversial Department of Government Efficiency, causing global boycotts and protests. Rival EV company BYD from China surpassed Tesla in global electric vehicle sales, becoming the world’s largest EV manufacturer. Also, the One Big Beautiful Bill Act cut out EV purchase credits from the government’s budget. All of these occurrences negatively affected Tesla’s share value, meaning your entire portfolio would have dropped significantly without diversification.
Use Musk himself as an example. He has diversified his portfolio to include several other companies to protect his net worth against a decline in the value of his Tesla shares. He owns a 42% stake in SpaceX, Twitter, Neuralink and The Boring Company.
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Why Tesla Is an Attractive Investment
Since its drastic drop in value in April, Tesla’s stock price has jumped back up 85%, putting the stock at an annual positive return. The company remains an attractive investment opportunity to many.
Because Tesla has factories and sales worldwide, it’s positioned to continue scaling and gaining massive amounts of profits. Tesla also remains the world’s most well-known EV brand, making it a trusted name for car buyers. Finally, Tesla’s focus on groundbreaking technology and initiatives like self-driving cars, renewable energy and AI makes investors optimistic about the company’s long-term potential. On top of its popular EV products, such as the Model 3 and Cybertruck, Tesla also sells batteries, charging equipment and solar panels.
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This article originally appeared on GOBankingRates.com: The Tesla Investing Mistake That Could Cost You Thousands