People Are Often Over-Diversified and Don’t Know It

People are often over diversified and don't know itVery rarely do I meet a client with a properly diversified portfolio. As much as we preach tactical asset allocation, you’d think people would be savvy about diversification.  They’re not.

When a prospect with an account at another firm tells you that he is pleased with his or her portfolio, you might suggest that the portfolio is not properly diversified.  To be properly diversified is to have part of our portfolio in things that make us uncomfortable.  If a client is one hundred percent satisfied with the way things are, that portfolio was undoubtedly constructed by looking in the rear view mirror, rather than through the windshield.

Advising a client to invest in something that would make that person uncomfortable doesn’t happen in the real world.  Because short-term performance is so important in the minds of Advisor and client alike, too many Advisors often choose a path which is easy to justify to the clients, rather than choosing the best opportunity.  After all, the Advisor is being held accountable.

This flaw presents a great opportunity for you to have a serious discussion about proper investing versus feel good investing.

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