Today, the stock market value of E*Trade Financial Corp (ETFC) dropped 58%, due to concerns about write-downs in their investment portfolio.  The company announced late Friday that the amount of the write-downs would be larger than previously announced and that they can no longer provide earnings guidance to the Street.  In addition, this morning an analyst from Citibank warned that there could be a bankruptcy in E*Trade's future (it looks like a remote possibility at this point).

This kind of decline can happen without warning, so I urge you to diversify your investments among different asset classes (U.S. stocks, international stocks, bonds, cash instruments, commodities, real estate, etc.) and among different companies and sectors.

If you have accounts at E*Trade, your funds are probably safe, due to FDIC and SIPC protection.  FDIC protects bank deposits and SIPC assists brokerage account customers.  Please remember that FDIC protection is capped at $100,000 per depositor, so if you have more than $100,000 deposited at E*Trade Bank, you may want to consider diversifying by capping out your exposure at the FDIC maximum.

The important point here is that we should manage our exposure to events that can wipe out our portfolios.   One particularly dangerous  type of activity is owning a  large amount of our net worth in the  stock of the company for which we work.  If trouble appears at your company, not only would your job and future income stream be at risk, but the value of your life savings could drop dramatically as well.  This is a double-whammy that no one wants to experience.

If you're not sure if you're investments are diversified enough, you can send a note to mail@sensiblesteward.com, and we will help you offline.

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