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Bankrate's 2008 Retirement Guide
Finding the funds
Sometimes, finding that extra bit of income can turn a retirement nightmare towards a happy ending.
Finding the funds
Investing in your retirement
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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 nearly twentyfold.

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 funds.

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.

-- Posted: Nov. 10, 2008
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