Think you're not invested in the stock market? Think again. My hunch is that you're likely contributing to a company-sponsored retirement plan. Am I right? Am I right?
Thought so
Lots of us think of such contributions as "house" money -- if we think of them at all. And yet for plenty of folks, the money socked away in their retirement plans represents the bulk of their nest egg.
Good for them. When you invest in a tax-favored account such as a 401(k), you receive an immediate benefit from the IRS: Because your contributions come from pre-tax dollars, you reduce the amount of your taxable income -- by as much as $15,000 in tax year 2006. What's more, your employer may even kick in a matching contribution, which provides the best incentive of all: free money.
Thing is ...
Hard to beat that deal. But simply throwing darts at your company's hodge-podge collection of funds is no way to tend to your nest egg. No, the better bet is to gauge that particular account in tandem with others you may have elsewhere -- IRAs or taxable accounts, for instance -- and make sure they all add up to a meaningful whole.
It could be, for example, that the portfolio you've "assembled" through your employer's plan turns out to be top-heavy with the large-cap likes of General Electric (NYSE:GE), IBM (NYSE:IBM), and Coca-Cola (NYSE:KO) -- a trio of the bluest of blue chips.
There's nothing wrong with that at all. But as you build out your overall portfolio, you should consider diversifying into mid-cap concerns like Expeditors International of Washington (NASDAQ:EXPD) and American Eagle Outfitters (NASDAQ:AEOS). You might even stake out smaller positions in such racy little fish as CNET Networks (NASDAQ:CNET) and Sonus Networks (NASDAQ:SONS).
Mixing up your asset allocation is a key to investment success, particularly if you're a newbie and are just beginning to lay a portfolio foundation.
The right profile?
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Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service and co-advises GreenLight with his pal Dayana Yochim.At the time of publication, Shannon didn't own any of the securities mentioned above. Coca-Cola is an Inside Value recommendation; American Eagle is a Stock Advisor pick; and CNET is a Rule Breakers selection. You can check out the Fool's strict disclosure policy by clicking right here.
