GE stock has a lot of plusses, and a huge minus

— -- Q: We put all our money into General Electric stock ge, and now we've lost a staggering amount. What should we do?

A: If there's been a heartbreaking stock during the financial collapse, it's General Electric.

GE's long history, stellar credit rating, diversified mix of businesses and reputation for solid management has made it a long-time favorite among investors. The company has consistently been the No. 1 stock tracked by readers in their USATODAY.com portfolios, as you can see here.

And examining many of the things investors typically pay attention to, the stock has been attractive. Even using discounted cash flow analysis, which compares a stock's price to the present value of its expected future cash flows, GE's shares have looked attractive as pointed out here.

But as I said in that column, GE stock despite its reputation, is risky. "Investors often make the mistake of thinking that if they own GE they're diversified. GE is massive and has businesses in many sectors, from finance to manufacturing and media. But, owning GE is much riskier than owning a diversified basket of stocks."

For that reason, investors need to remember that if they choose to own GE, it should be part of a larger, more diversified portfolio.

Here's the issue with GE. During times of economic distress, the most important thing to investors are companies' balance sheets. At this point, investors don't care as much about a company's profit as they care about liquidity, cash and debt levels. Many investors have been shocked at how GE's debt has come back to haunt it during the recent downturn.

At this point, credit rating agencies are considering stripping the company's coveted AAA rating. Meanwhile, the stock has been in freefall, losing 82% of its value from its 52-week high. That's a devastating loss for investors.

Is the stock going to rise, or fall further, from here? That depends on who you ask. Robert Maltbie, of research firm Singular Research, says a vast majority of GE's returns in the 2000s was largely a mirage, the product of excessive leverage. The more a company borrows, the better its return on equity, or cash put into the business by stock investors, looks. But when the economy slows, excessive borrowing puts the company at risk. Maltbie expects GE's revenue to fall 5% in 2009 and earnings per share to decline 64%. Maltbie rates the stock a sell.

Standard & Poor's stock rating, though, remains a "hold" with a price target for the next twelve months of $8.

Which is correct? It's impossible to say. But the breathtaking decline in value of GE stock is yet another reminder of the dangers of putting all your money in any one stock. Even blue chips have been vulnerable to this brutal bear market, as you can read here.

Spreading your stock investments over a variety of companies, using a low-cost index mutual fund or exchange-traded fund (ETF), is a good way to make sure you don't get caught by the problems of a single company. By just buying Vanguard's large-cap U.S. stock exchange-traded fund vv, you spread your risk over hundreds of companies. That way when the economy recovers, you can make sure you get your share. At the same time, you shield yourself from company-specific woes.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.