Curated Links: 05/06/2024 – Knowing Concentration Risk
Love Your Company Stock? Here’s What to Know.
Owning a stake in the company you work for might have some advantages. You might feel optimistic about your employer’s future and want to share in the wealth. As an employee, you may even be able to purchase stock at a discount. However, there are risks you should consider.
Source: Finra
Having Too Much Employer Stock in Your 401(k) is Dangerous. Just Look at GE.
When General Electric was kicked out of the Dow Jones Industrial Average in 2018, many participants in its 401(k) retirement plan were likely in shock. Over one-third of the plan’s assets had been invested in the shares of General Electric, as shown by the company’s federal filings.
Source: Brookings
Workers with Company Stock Might Have Too Much risk in Their Investment Portfolio
If company stock is part of your compensation package at work, you might want to give your entire investment portfolio — including retirement savings — a closer look.
Source: CNBC
Asset Allocation and Diversification
When it comes to investing, asset allocation is the equivalent of deciding how many of your eggs you’re going to put into how many different baskets—or asset classes. Diversification is the spreading of your investments both among and within different asset classes. And rebalancing means making regular adjustments to ensure you’re still hitting your target allocation over time. All are important tools in managing investment risk.
Source: Finra
Concentrated vs. Diversified Portfolios
Most basic articles on personal finance advise investing in a diversified portfolio. Diversifying investments is touted as reducing both risk and volatility. While a diversified portfolio may lower your overall risk level, it also reduces your potential capital gains. The more extensively diversified an investment portfolio, the more likely it is to mirror the performance of the overall market.
Source: Investopedia
