Investing in your retirement
Promises and pitfalls
A well-timed investment in computer giant
Apple, for example, could easily have set
you up for an early retirement. Its stock
price languished in the mid-teens in the early
2000s but in the ensuing five years shot up
With that opportunity for rocket-powered
growth, however, comes greater risk.
Consider the wide-eyed optimists
who bet all their savings on a high tech startup
in 1999, only to see their paper wealth --
plus some -- evaporate the following year
when the dot-com bubble burst.
To maintain a balanced portfolio,
Shashin Shah, a Certified Financial Planner
and Chartered Financial Analyst in Dallas,
suggests average investors have no more than
10 percent of their total portfolio allocated
to individual stocks, with 80 percent in stock
funds and the remaining 10 percent in bond
Perils of employer stock
Bear in mind, of course, that company stocks do not present excessive risk to your portfolio unless you are overexposed to a particular sector -- or company.
That goes double for those who invest in the stock of their own employer.
Through stock options, employee stock purchase plans and company stock selections in their 401(k)s, many investors hold a disproportionate percentage of their company's stock in their total asset portfolio, leaving them vulnerable.
Should their employer falter, not only is their financial security at stake, but they're likely to lose their job at the same time.
It was a lesson learned by thousands
of employees of energy trader Enron Corp.
More than 60 percent of Enron's 401(k) retirement
funds were invested in the company's stock.
Thousands of its employees lost their jobs and life savings when Enron shares plunged from more than $80 a share to less than $1 before it filed for bankruptcy in 2001.
If your retirement plan is overexposed
to your employer's stock, consider diversifying
by adding money to investments outside of
your 401(k) -- in your personal individual
investments, IRAs, etc.