VOL. 126 | NO. 244 | Thursday, December 15, 2011
Rays of Wisdom
Dana and Ray Brandon
To be on Safe Side, Diversify
By Ray and Dana Brandon
Ray’s Take The old adage “don’t put all your eggs in one basket” very much applies to saving and investing. You may think of investment diversification as simply having a variety of mutual funds, but it’s important to consider other factors, too.
Consider where you work. Your employer could also be the source of your pension funds; add to that the value of any stock you may own due to employee stock options, and you have a great deal riding on one company. That could be dangerous to your financial future if that one company were to badly stumble, be bought out or fail completely.
While these things might seem far-fetched to you right now, we’ve seen big, successful companies go by the wayside before. It could happen again. You’re not going to want to give up your job or your retirement, but you might not want to hold on to all that company stock. It is a dilemma, and selling may be viewed as a non-team-player move. But that’s a lot of risk, having both your career and your financial independence dependent on the same stock.
Another way to increase diversity is to look beyond traditional mutual funds. After all, mutual funds are made up of stock holdings, and when the whole market goes down, most mutual funds will, too. It might help to select mutual funds with different investment parameters or that focus on different segments of the economy, but ultimately, they are still mutual funds.
You may also want to look at bonds, commodities and other investment options. You should absolutely be looking outside the U.S. borders for investment opportunities. There are a lot of options available to keep your investment eggs tucked away separately.
Ask your financial adviser about the best investment strategy for you. Probably the first thing you’ll hear is, “Diversify.”
Dana’s Take Very few people have the time to closely following the stock market and market trends.
That makes most of us “passive investors.” We make investment decisions once and then let things ride along unchanged. When the regular investment statement comes around, we either feel richer or poorer, depending on which way our investments went.
But, in reality, we’re neither of those; until you sell an investment, you’ve neither made nor lost a penny.
In a volatile market like we’ve had recently, it’s important to keep that in mind. Otherwise you’ll be obsessing over every little hiccup in the market – and lately there have been some mighty big ones.
The next time the market takes a dive, just take a deep breath and remember: You don’t have to sell now. Also, your 401(k) invests a little each month in stocks, so you may be buying at a discount. That means you could profit from the tanked stock market.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at firstname.lastname@example.org.