If you’ve a 401k plan, chances are your money is invested in stocks. Unless nearing retirement, investment experts recommended dabbling in the stock market. For those who are able to wait and survive the market’s ups and downs, the stock market is a great way to invest, save, and make money for retirement.
Most importantly, never invest too much money in your company stock. For most, company stock appears like the best choice. You work for the company, so why not support it by being a stockholder. This is a good theory, but it can backfire. What if your company collapses and goes under? You not only lose money from your stock, but you lose your job too. Do not suffer a double hit.
Always review your employer contributions. Several employers contribute to their employees’ 401k plans. This usually involves matching a percentage of employee contributions. Some employer contributions come with restrictions. For example, the money might only be utilised for company stock. Your hands are tied in this aspect, but use the rules and restrictions to diversify your own contributions. For instance, if your employer contributions buy you stock in your company, use your own money to invest in others.
Among the best ways to diversify is to consider the economy. It always has its ups and downs. For example, when the economy is good, consumers spend more money. When it’s bad, they spend less. This is evident with restaurants. Domino’s Pizza shares were around $32.25 in April 2007. In January 2009, they’re now about $6.13 a share. Now, the economy is bad. Consumers are watching and limiting their purchases. For years, McDonald’s shares were consistently below $45 a share. In 2007, they started to increase. In January 2009, shares were worth about $60.07 each. If you invest in retail stores or restaurants, make sure to have a mixture of high end and discount companies. That way you’re protected if the market changes direction.
The above mentioned tips focused on diversification for 401k stocks. It’s also a good idea to diversify in other aspects. Do not invest all your money in the stock market. Every so often, the market experiences twists and turns. Do not get caught in the rough patch when ready to retire. As you near retirement, start making the switch to bonds. They do have a smaller payoff, but the risks are much less. If in your early 20s or 30s, diversify and create your portfolio with a mixture of stocks and bonds.
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