With any investment portfolio, diversification is critical in order to maximize return. Diversification can simply be defined as “not putting your eggs into one basket.” Although this is often preached, the choir is usually the first to ignore it.
We witness it all the time! For example, along with the collapse of Enron, came the collapse of its employees’ retirement plans. Why? According to The New York Times, Enron’s 401k’s asset value was approximately $2.1 billion prior to the collapse, with more than half of its assets invested in the company’s stock. Although employees had the option to choose other financial assets, satisfied with Enron’s financial performance, many invested heavily in the company’s stock. Therefore, when the company’s stock plummeted, employees’ retirement accounts were wiped out in little to no time. [Read more…]