Uber made its initial public offering in May 2019 as one of the largest tech IPOs ever, with a valuation of $82 billion. Ever since, the closely watched stock has taken investors on quite the ride.
If you’re considering adding Uber to your portfolio, here’s what to think about before you buy.
1. Look under Uber’s hood
Before you buy Uber, or any investment, it’s important to dig into the details.
Researching a stock means reading up on the company and scrutinizing everything — including its management team, its competition, namely Lyft, and its sources of revenue. (Uber isn’t just meal delivery and airport trips; the company also has a freight division, rents scooters and bikes, and even has a self-driving car business.)
You also want to look at the rideshare and transportation industry as a whole, including how it has been affected by the coronavirus pandemic.
» Learn the basics: How to research stocks
Uber is still somewhat of a newcomer to the stock market, but you can find info on its stock history in the company's annual report, and its quarterly earnings, available on Uber's website. You can also do plenty of competitive research and read analyst opinions via your brokerage account.
» View our list: The best-performing stocks
2. Consider your portfolio’s other passengers
The next thing to consider is how Uber fits in with the rest of your portfolio. A general rule is not to have more than 10% of your total portfolio in an individual stock. Investing your entire portfolio in any single stock or single industry is considered risky; one run of bad luck and your whole investment could be at risk.
Diversifying your investments across many companies, industries and geographical locations can help reduce that risk. Investing advisors recommend that the vast majority of your portfolio, 90% or so, should be invested in low-cost index funds, which allow you to own public companies such as Uber alongside many others in a single investment.
Quick refresher on index mutual funds: With an index fund, you buy a chunk of the stock market — like the S&P 500 — instead of picking and choosing individual stocks. As such, you can forgo research into each company, though you still want to dig into the fund itself, looking at things like fees.
3. Set a budget for Uber stock
Before you order your Uber stock, set a ceiling on how much you’re willing to invest. A good investing guideline: Invest only money that you don’t need within the next five years. Money that you need for short-term goals belongs in an account where it’s liquid — that is, easily accessible — and safe, such as a high-yield savings account.
You should also consider whether you have enough cash saved in your emergency fund before investing. Financial advisors often suggest having enough to cover at least three months of living expenses.
You can make regular investments over time with dollar-cost averaging, a strategy that spreads out your stock purchases and helps ensure that you’re not dumping all your money in at a high point for prices.
See our general guide on how to buy stocks for additional details on making stock purchases, including a full breakdown of various order types.
» Need a broker? See our full list of the best brokers for stock trading
Disclosure: The author held no positions in the aforementioned securities at the original time of publication.