Everyone has heard the warnings about putting all your savings into one basket. One only has to look back a few years to see what might happen if you do. Although extreme examples, there was the Madoff debacle, where trusting people invested their entire savings with Bernie Madoff, a shyster who took them to the cleaners, and Enron, where employees put their entire retirement savings into company stock and lost everything when the company collapsed.
So how do you protect yourself and your future? Diversify, diversify, diversify. Most important–don’t put all of your money into one company’s stock. If you diversify, and one company does poorly, you still have money invested with other companies that might be thriving. It betters your odds and helps you weather the highs and lows of the stock market.
Here are some facts about diversifying your investment portfolio:
- Investing in a broad array of stocks makes you less vulnerable to volatility in any one company or industry.
- Mutual funds are a good investment choice, because they are already diversified, and you don’t have to keep up with the performance of many different individual stocks.
- Figure out how much risk you can tolerate. If you are many years away from retirement, you can put your money in riskier stocks or mutual funds. If you are close to retirement, you might want to choose less risky mutual funds or bonds.
- When choosing mutual funds, look at their performance over the last several years and see how they compare to the stock market as a whole.
- Review and update your investment portfolio every so often to match your changing situation and needs.
- Be aware of fees that mutual fund companies may charge.
Investing can be a complicated and time consuming process. Make sure to contact your financial planner for help in designing your financial future.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.