Even if you're not an investment expert, you're probably
familiar with the term "diversification." It means not putting all
your eggs in one basket. Diversification calls for choosing the right mix of
investments to keep a balance between risk and return.
* Choose the right investment mix. While there is no single
asset mix appropriate for all investors, most people should have some
combination of stocks, bonds, and cash in their portfolio. The right investment
mix for you depends on your age, income, family responsibilities, and your
tolerance for risk.
* Take a look at your mutual funds. Many mutual fund
investors believe that they are well-diversified, even though they aren't. For
example, it's possible that different mutual funds own many of the same stocks
or similar stocks in the same industries. Whether you're thinking about buying
a fund for the first time or you already own several of them, it pays to do a
little digging. All mutual funds are required to publish a list of their
complete holdings at least twice a year. Get the most recent listing for your
funds and compare them for overlapping investments.
* Consider the big picture. When you review your portfolio
for diversity, consider the investments both inside and outside your retirement
accounts. They are parts of the same picture. Doubling up on the same
investment in both types of accounts may decrease your diversification and
increase your risk.
* Keep an eye on your 401(k). As a general rule, you should
avoid being too heavily invested in any one company's stock, including that of
the company for which you work. If your employer matches your 401(k) contribution
with company stock, consider other investments for your own 401(k)
contributions and for the money you invest outside your 401(k) plan. When
you're allowed to do so, consider selling enough company stock to rebalance
your 401(k).
Don't risk your financial future by putting too many eggs in
one basket. If we can help evaluate your situation, give us a call.
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