No matter your age, make sure your investments are diversified
— -- Q: My 72-year-old husband and I, 65, took a 30% hit on our portfolio last year because so much is in Cisco Systems stock csco and Intel intc. Should we be concerned?
A: Yes you should.
Without knowing your particulars, I'm guessing you're both retired or close to it. I'm also guessing you saved a considerable amount to retire on. If that's the case, why are you gambling your hard-earned nest egg on two high-tech stocks?
Don't get me wrong. Cisco and Intel are both fine companies. Both dominate their respective areas of networking and semiconductors. Neither is in any immediate danger of obsolescence or decline.
That said, they're two stocks in the same industry. Not only does putting a big chunk of your retirement savings in individual stocks expose you to huge company-specific risks, but you're exposed to a single industry.
Most people nearing or in retirement should be more concerned with preserving their money and making it last, rather than taking a big chance, trying to boost returns.
Again, I don't know if you're still working, collecting a huge pension, have access to some sort of slush fund somewhere, or whatever. But if you're retired and these two stocks are a big chunk of your retirement account, I'd suggest you reconsider.
First, you really should have a large portion of your savings in bonds and other investments that don't fluctuate so much. You should consider investments short-term Treasury securities, or a high-yield savings account or certificate of deposit with a bank. When you're retired, you don't want to have to worry about your money vanishing due to circumstances beyond your control.
If you insist on owning individual stocks, keep them to a manageable percentage of your portfolio. That percentage is up to you. The old rule of thumb is 100 minus your age should be the percentage you have in stocks. So, 28% would be the most you should have in stocks. Even that might be too high, depending on your taste for risk.
Second, owning a few shares of individual stocks might be fun for you. But your stock ownership should be spread among many companies and industries. You might consider buying some index funds or exchange-traded funds (ETFs) that track the Standard & Poor's 500 index to get started. Among them: iShares S&P 500 index ivv, SPDR S&P 500 ETF spy.
A diversified portfolio can fall quite a bit, too. But generally, over time, diversification helps smooth out the bumps.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.