NEW YORK (Money Magazine) - Taking too much risk often goes hand in hand with another big mistake: putting all our eggs in one basket. We tend to invest too much of our money in the stocks of our employers, the industry we work in or the company with a big operation close to our homes.
We feel safer, and we figure that concentrating our investing in what we "know" gives us a better shot at striking it rich. Ironically, financial planners had warned Mitchell Marks -- mentioned at the beginning of the story -- that he had too much of his portfolio in Marsh & McLennan stock.
But Marks decided he knew the company, and he knew better. "That investment was very good to me," he says. Until, of course, it wasn't, and his stake was nearly halved.
Get it right
To avoid the same fate, never hold more than 10 percent of your money in a single stock or mutual fund that holds only a small number of stocks, no matter how sure of it you think you are. Lower the ceiling to 5 percent for investments in your own or related industries.
Don't load up on biotech, for example, if you work for a drug company. Instead, consider the stocks of oil companies, manufacturers and financial services firms, whose fates are entirely independent of the pharma trade.
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