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Lack of Diversification
The first rule of investing is “do not put all your eggs in one basket.” Despite this universal knowledge, some financial advisors somehow still fail to properly diversify portfolios.
Diversification is important because it protects portfolios against downside risk. A well-diversified portfolio will hold different assets with returns that are not correlated to each other. This is structured in such a way that the entire portfolio does not decline in value when one asset declines in value. When a portfolio is not well-diversified, a fall in the price of one asset class will cause the entire portfolio to fall.
We have successfully handled cases involving portfolios over-weighted in the energy industry, foreign bonds, junk bonds, and other sectors. In each case, the specific sector had a substantial decline in value, which caused the investor to lose a significant portion of their life savings. In each instance, with proper diversification, the losses could have been greatly reduced.
Please contact us for a free and confidential case evaluation if you believe that you are a victim of overconcentration or lack of diversification.