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Plan Well, Retire Well

Saving and investing your money

I Thought I was Diversified But ...

Devon believes that companies who produce cell phones stock prices are going to increase steadily in the next few years. However, Devon, can't decide which company will do the best; he buys 100 shares of three companies: Motorola, Apple, and Samsung. Is he diversified? If this is his complete stock portfolio, then no. All his investments are within one industry, and if this industry falters his investment portfolio will be heavily impacted.

Jessica and Jeremy met at work, married, and continue working for the same company. They're very impressed with the business management and products. The company offers the option to buy company stock; they decide to purchase company stock with the money they've allocated for investments. Good idea? Probably not – if the company unexpectedly fails, Jessica and Jeremy will lose their jobs and their investment portfolio. This is another example of too much business risk – too much of a person's investment portfolio tied up with one company or industry.

Katie recently graduated from college and now has a well-paying job. She decides to invest in three mutual funds; she chooses mutual funds from three different fund managers. Is she diversified? Katie needs to be sure that these mutual funds are not heavily invested in the same companies, or in the same industries, to be sure that she has the diversification she wants.

What other examples can you think of where it seems like someone is diversified, but in reality they may not be? Click on my name below and share your thoughts and experiences. Help someone else avoid mistakes because of too much business risk.

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