Ricardo is 30 has recently inherited $40,000 from his grandparent’s estate. He has $7,000 in student loans and $3,000 of credit card debt that he has carried for 3 months. He would like to invest his inheritance in the stock market as a means to grow his wealth for retirement. Ricardo feels that alternative energy is an attractive place to invest presently and would like to buy 3-4 individual company stocks in that sector.

Explain what action steps Ricardo should take prior to investing in the stock market. Subsequently, explain why he should consider investing in diversified index funds or ETF’s rather than a few individual company stocks.