15 ways to ruin your financial future: Not diversifying your portfolio
OK. Don't panic. There are some things that you have a degree of control over and they can help prevent you from making costly financial mistakes. One strategy you can deploy in these turbulent economic times is to begin diversifying your investment and savings portfolio.
By not diversifying your portfolio, for example, keeping only a handful of stocks, you run the risk of tying your fortune to the fate of a single company or sector. Invest just in stocks and you are exposing yourself to market volatility -- the kind we're currently experiencing. Prolonged exposure may put you in the hole for a long time and make it very difficult to recover. Why should you put yourself at risk like that?
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For my own part, I bought an apartment in New York City less than two years ago, so my funds are, well, not exactly plentiful anymore. But what I do have left, I stowed in a cash management account with my brokerage house. There's a Roth IRA and another retirement account, CDs, a handful of stocks and a mutual fund. I have no bonds.It may seem like a flight to overseas stocks and markets is a good idea right now. But Jim Peterson of the Schwab Center for Financial Research suggests putting just 25 percent to 30 percent of your stocks abroad. He suggests going further and splitting a third of that between small-caps and emerging markets. Don't go nuts investing in foreign funds.
Financial czarina Suze Orman says if you're at least 20 years away from retirement, having at least 80 percent of your money in stocks makes sense. If you're within 10 years of retirement, the rule of thumb is to keep 30 percent in stocks and the rest in bonds. Orman says you need to own a lot of different types of stocks! She says to go with diversified mutual funds or ETFs.
So go forth and diversify! Take a good look at your portfolio, what expenses you have coming up and when you want to retire. Diversifying now makes good sense.