You can invest in the Dow through an exchange-traded fund called Dow Diamonds (Stock Quote: DIA). It owns all thirty Dow stocks, and automatically adjusts when the members change. On Monday, GM will be replaced by Cisco Systems (Stock Quote: CSCO).
The problem of being “overly concentrated” in one stock is especially common for people who acquire their employer’s stock. Many companies use stock for the employer’s matching contributions to retirement plans like 401(k)s.
Generally, the employee is wise to limit these holdings to less than 10 percent of the portfolio. After reducing a big holding, look for an alternate investment that looks promising but isn’t likely to go up and down in lockstep with your other holdings.
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Often, it pays to choose investments with steady gains over those that whipsaw about. To guide your choices, get a sense of the kinds of returns you need to meet your financial goals. The Savings Goal calculator and Savings, Taxes and Inflation calculator can help.
What should you do if you’re stuck with a block of GM shares?
Use the loss you’ve suffered to offset gains on other investments, thus reducing your federal income tax. If losses are bigger than gains, they can be used to reduce your ordinary income by up to $3,000 a year, or “carried forward” to offset capital gains or income in future years.
The easiest way to book the loss is to sell the shares. Shares in bankrupt firms often trade on the “pink sheets” even after they are no longer listed on a major exchange.
