While many companies give their employees the opportunity to funnel 401k money into company stock, it's a good idea to diversify any investments you're making using your 401k rather than putting all your eggs in one basket. Every solid personal finance plan includes diverse investments across a variety of industries and investment types.
Things You'll Need
- Financial advisor (recommended)
- 401k plan
Acquire a copy of your 401k plan's Summary Plan Description (SPD). Here, the terms under which you can access 401k funds will be explicitly laid out. The SPD will also contain information on the terms and conditions under which you can use 401k money to invest in company stock, if your company allows such a practice.
Buy into company stock using your 401k money, if possible. Certain plans may include provisions under which you can then liquidate your shares in the company to reinvest in diversified investments. However, it is best to use this strategy only in a situation where the company's stock rose in value after you invested your 401k money in it.
Sell off the shares you bought in your company using your 401k money. You will then be left with capital to reinvest elsewhere. Among the many options available to an investor looking to diversify are stocks, bonds (corporate and government), money market funds, precious metals, currencies and other securities products, such as derivatives.
Remember that many 401k plans permit the account holder to be the sole director of any investments made using the money. Depending on the terms and conditions set forth in your SPD, you may be free to pursue other investment opportunities with your 401k without having to invest in company stock first. However, you should keep in mind that gaining direct access to your 401k funds is costly and can generally only be accomplished in times of financial hardship--when investing will be the last thing on your mind.
Work with your financial advisor to diversify your investment plan, bearing in mind that you are gambling your future by sinking your 401k money into investments. Investments that are 100 percent foolproof and risk-free do not exist.
Tips & Warnings
- Sign up for investment diversification courses to educate yourself on building a safer investment portfolio. Many employers offer education programs, if a 401k investment program is in place as part of the company's financial policy.
- While many employers offer buffers to employees who invest in company stock using their 401k in the event the stock declines, keep in mind that your company may not be liable if market forces result in capital losses out of your 401k.
How to Diversify Your 401k With Company Stock
Oftentimes, companies allow employees to buy stocks for a 401k below market prices. Diversify your 401k through stock shares offered by a...
How to Diversify Your Investments
How to Diversify 401k Investments. While many companies give their employees the opportunity to funnel 401k money into company stock, ... Why...
How to Choose Diversified Investments Using Percentages
The key to determining the percentage allocated for each asset class is in using percentages to diversify ... allocate your 401k, ......
How to Allocate Your 401K Investments
How to Diversify 401k Investments. ... Should I Leave My 401k Or Roll It Over? When you change employers, one important decision...
What Are the Best Funds for a 401K?
What Are the Best Funds for a 401K?. ... Portfolio Diversification. A diversified portfolio maintains a percentage of each fund risk category.
How to Select 401k Investments
Because most employers allow their workers to self-direct their 401k funds, there are usually a diverse range of investment options open to...
How to Buy Gold With a 401k
Can I Invest My 401K in Gold? ... How to Diversify Your 401k With Company Stock. Featured. 6 Ways to Travel on...
Best Way to Invest Your 401k
Best Way to Invest Your 401k. ... with the degree of diversification in any investment category being determined by your risk tolerance.