WSJ: How to Adjust Your Portfolio for Lack of Job Security

Wednesday, 10 Jul 2013 10:55 AM

By Dan Weil

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Most investors probably don't think too much about the possibility of losing their job when they put together their investment portfolio.

But they should, says Wall Street Journal reporter Brett Arends. As a rule, if you're in danger of getting fired, stay away from risky investments, experts tell him. Entrepreneurs in particular should invest cautiously, given their high risk of business failure.

One common error is for people to invest too heavily in their own industries, experts say. That exposes them in two ways. If the sector sags, their investments may suffer, and they may get axed from their company.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

Many employees are granted company stock as part of their compensation. It may be a wise idea to either sell that stock and invest the money in another industry or buy put options on the stock to gain protection from a sharp drop. If the stock falls, the option will gain in value.

To be sure, options costs can add up, and some employees are banned from purchasing put options on their company stock.

The simplest solution is to invest in other industries than your own, particularly low-risk sectors.

Of course finding those sectors isn't so easy at the moment. The usual suspects – utilities and consumer staples – have experienced outsized gains in recent years, and some experts view them as overvalued.

But Josh Peters, director of equity-income strategies at Morningstar, sees some good values among dividend stocks, including the real estate income trust (REIT) Realty Income Corp. and Clorox, the bleach company, he says on Morningstar.com.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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