IFA Radio's Episode 34

As of the writing of this article, stock picker Jim Cramer currently likesR.R. Donnelley & Sons and KBR. If he were to buy loads of stock in these two companies, he would still be better off than the person who invests heavily in the company they work for. Even if those companies tanked, he would still be receiving regular income (as dubious as his method of making that income might be) from CNBC.

The article in Forbes goes on to say that 51% of Coca-Colas 401k assets are in the company’s stock. McDonalds has 45% of their 401ks in their stock! Granted these two companies have little chance of going completely under. But if they did, people would lose their stream of income and half their portfolio in once crushing blow.

If you have an option to buy company stock for your 401k, the percentage of your portfolio it should make up should probably fall between 0-0%. You should have NONE of your company’s stock in your portfolio. Sure, it sounds noble to have your company in your portfolio so you can see your hard work raise the company’s stock price. But at the end of the day, as many people in this downturn learned, it does not matter how good of an employee you were or are. The economy can swallow up even the biggest fish. If you get laid off because your company is crashing and burning, the last thing you want is your retirement portfolio to turn into a grease fire as well. It’s entirely possible that your retirement portfolio will become even more important because your career path did not go anywhere close to where you had it charted.

When you build a properly diversified portfolio, you want a vast array of stocks that span across different sectors and countries. But before you start buying these well-diversified mutual funds it is of the utmost importance that you determine just what kind of investor you are in terms of risk. Are you high risk, moderate risk, or low risk? Most people think they can just classify themselves based on a feeling they have about themselves, or based on an idea they like. You may view yourself as a conservative person so you automatically assume you should be in a very low risk portfolio. Some people think of themselves as a live fast, die hard type of person so they think they belong in high risk. The truth is you need to take a Risk Capacity Survey that will ask you specific questions that can cut through the presuppositions you may have about yourself.

If you take the survey and follow the recommended allocation of stocks and bonds, you will be way ahead of the average person who spends most of their time chasing after the next big thing or the “hot” fund from last year or last quarter.