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For numerous reasons, individual investors may find their investment portfolio is focused on just a few particular securities. For some, they may work in industries where stock options are common, such as the Energy, Technology or Consumer sectors. For others, they may get excited about an investment making headlines and be tempted to load up on it.
But remember that “too much of a good thing” may actually be exposing your portfolio to greater risks. Given the volatility and unpredictability of the market, you can’t afford to jeopardize your important financial goals – such as a comfortable retirement or your child’s college education – by putting all your money into just one or two stocks or bonds. Simply put, diversification is key.
Despite all the evidence that diversification can help reduce investment risk, many investors choose to put financial resources in just one or a few stocks. Why don’t these investors diversify? Here are some common reasons – and some thoughts on why these reasons may not be valid.
We believe that putting most of your financial resources into just one investment can be risky business. If you’re in this position, ask yourself:
Ultimately, diversification doesn’t guarantee a profit or protect against loss, but we believe it can help you weather the market’s ups and downs – and that’s a big advantage for any investor.
Remember the importance of keeping a balanced perspective when you’re tempted to overload on a good investment. Your financial advisor can help you position your portfolio specific to your situation, goals and comfort level with risk.