AN INVESTOR’S BEST FRIEND—ASSET ALLOCATION
Years of intensive studying of market trends and financial theory development have gone into this model. Therefore, I have at my fin- gertips the ability to put together the best possible portfolio for all of my clients based upon their risk levels and goals. We then discuss different types of investments within each of the proposed invest- ment categories. The asset allocation model encompasses all the dif- ferent classes of investments, including real estate; international stocks and bonds; tax-deferred investments; large, medium, and small company stock; and low-grade and high-grade bonds.
THE IMPORTANCE OF DIVERSIFICATION
Diversify, diversify, diversify—it can’t be said enough. History has shown us, very recently in fact, how vital it is to diversify our invest- ments. When a stock, mutual fund, or even a sector is hot, it can be tempting to think about investing a good portion, or all, of your money in it. However, this is the riskiest thing you can do. Smart investors know that in order to make consistent positive returns over the long run, your portfolio must reflect different types of invest- ments and different sectors.
I have many clients who came to me with large holdings in their companys’ stocks. It’s very easy to accumulate a lot of stock in the company for which you work. Many companies only give their 401(k) match in company stock. It’s then up to the client to diversify that stock across different funds within his or her 401(k). I personally caution my clients about holding more than 5–10 percent in one stock or holding, although diversification alone is no guarantee that the overall return will be profitable.
One client of mine works at Johnson Controls. The company’s stock has done reasonably well over the past year or so, and my client had amassed a 401(k) worth more than $1,300,000. She watched the stock prices daily and was actively managing it herself. However, the entire amount was invested in Johnson Controls stock. This meant that whenever the stock price dropped even a little bit, her portfolio took a hit.
When we first met, she explained to me that she felt very com- fortable leaving her money in Johnson Controls because she worked