Tuesday, April 9, 2013
Investments for the unemployed
Story originally appeared on USA Today.
Q: I'm unemployed. What stock should I buy?
A: Retirement and college are common financial goals. Now, preparing for the risk of unemployment is another.
With unemployment stubbornly high, some investors are adjusting traditional views of what stocks or investments are appropriate when income dries up. Unemployed investors need to create income to make up for their lack of a salary. But lacking job income, you can't afford to take on risk that might blow out your portfolio.
For example, in your e-mail you asked if Home Depot is an appropriate investment while you're out of work. The answer is: No.
Home Depot is a large company, yet the stock is volatile. The company's earnings and revenue are closely tied to the ups and downs of the housing market. That's dangerous, because when housing is down, the job market could be, too.
Instead, you first want to make sure you have enough cash to hold you over while you search for a job. This money is for emergencies and should be nowhere near the stock market.
Money that remains to be invested is best placed in a mix of diversified investments in large-cap stocks and bonds. Doing this will at least reduce your exposure to a company-specific problem at a time when you can least afford it.