Why Diversify Your 401(k) and Why Your 401(k) Should Include Stock Options (IB Specima)

Why Diversify Your 401(k) and Why Your 401(k) Should Include Stock Options (IB Specima)Two topics I have written about in the past are 'Why Diversify Your 401(k) and Why Your 401(k) Should Include Stock Options'IB Specima'. One of the most common questions I get from my clients who want to diversify their investments is, 'If you are investing in a diversified portfolio of stocks, do you need to diversify further? Why?'The answer to this question can be complicated and confusing, which is why there are whole lot of articles and blogs written on the topic. The truth is that no matter what you are doing, it's always a good idea to diversify. This not only makes your portfolio more efficient but also allows you to spread your risk better over a broader range of assets.The reason why this is a good idea for people who invest in stocks is because it eliminates the 'poisonous' spread. This is when you find yourself investing in one industry or sector and getting a large dividend, while inve sting in other areas that make up less than half of your portfolio. It's also very bad for investors, because it does not give them any flexibility in terms of their portfolio.On the other hand, the reasons why it's a bad idea to diversify completely go beyond the fact that you don't get the luxury of spreading risk out over a broader range of assets. There are also important issues with many people's retirement planning. For instance, when you invest in one or two sectors, you may get burned if the entire economy goes down in flames. In other words, even if you get out before things get too bad, you don't know if you will get to make your payments when they get due.So how can you get around this problem, which is another question I get asked a lot? In my opinion, there is an easy way to get around this issue and that is by having a diversified portfolio. Here's what you need to do:First, you need to sell all of your stock options. In case you haven't already figured it out, all of your paper stock options represent the right to buy the stock that you are currently holding at a specific price. You need to sell them all to pay off your financial obligations.Then, you should transfer all of your trading accounts into the stock option account that you already have. Make sure that you use a broker who specializes in stocks because, as I discussed in my earlier IB paper, this is a good way to diversify your portfolio and keep your risk to a minimum.Finally, you should open different funds to place your money in. Make sure that you do this carefully and that you do not try to hurry your decisions, which I think would be a big mistake. In any case, you should set aside enough money for your next big move in life and just use this as a backup.