I'm a 32-year-old who has been investing for about nine years. I worked for a major oil company and put the maximum allowable percentage into my 401(k). I recently changed jobs and rolled my 401(k) into a Fidelity IRA rollover account and diversified as shown below. I like having the option of investing in stocks I think will do well. I really like Advanced Micro Devices (AMD) - Get Report. Is it a bad idea to invest so heavily in one stock? I'd also like to retire before 65. I was thinking closer to 55. -- B. H.
I think you've done a lot of good work in structuring your portfolio. One thing I find refreshing is that unlike many long-term investors, you've explicitly included foreign investment as part of your asset allocation. You have some sector plays in natural gas and electronics that are providing both diversification and good returns. Some 55% of your assets are invested in a manner that I might tweak, but really, that would be nit-picking. But you've got an 800-pound gorilla hanging out in your portfolio that needs to be released into the wild -- or at least put on a diet.
Advanced Micro Devices has returned more than 100% in the year to date, even though it's down 34% from its split-adjusted high closing price of 46 in May. It's hard to argue with success, but I'm going to try. You're holding most of this stock in a tax-deferred account. You don't have to recognize the gains on the sale of the shares in the IRA account, and you won't pay any income taxes on those gains until you take distributions from this account. You need to be truthful with yourself and answer the question: Was I lucky or was I smart?
Do you have an edge in investing in semiconductor stocks? Will you know when to get out? What forces are moving these markets in general, and AMD in particular? Earlier this week, a stock analyst revised his outlook on both AMD and
, upgrading them from market perform to buy. This change in outlook came one week after the same analyst
both stocks from strong buy to market perform. I bring this up, not as criticism of the analyst but to make a point: If someone who makes his living tracking semiconductor stocks can't decide from week to week what his outlook is for a chipmaker, what's your insight? Just remember that wishing won't make it so.
Investing in individual stocks isn't the problem. You just need to start shopping for some new ones to add to your portfolio. I get uncomfortable when one stock represents more than 15% of a portfolio. Keep diversification in mind, and don't replace AMD shares with Intel shares. With cash earning more than 6% in your account, there's no shame in having some money in cash while you shop for the other stocks. After all, it's outperforming six of your other nine investments. Give yourself a deadline for reinvesting so you don't stay in cash forever. Look to sectors that are currently underrepresented in your portfolio, such as cyclical, financial and service sector stocks. These sectors would be a good place to start shopping.
AMD is classified by
as a slow-growth stock. With almost 45% of your portfolio in that one stock, you're unique in being overrepresented in technology but with a lower expected-growth rate than the typical tech-heavy portfolio. That's helped you over the past few months, but again you have ask the question, lucky or smart?
At age 32, trying to be successful enough at investing to retire early doesn't require you to take big chances in individual stocks. Keep participating in whatever retirement plans you're eligible for and diversify your holdings.
Send In Your Portfolio
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Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at