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For Most Investors Diversification is Key

I felt horrible today as one of the planners who works in my office brought up a client we worked on 2 years ago.  As I have explained in the about me, I am back office support for a lot of fee based and commission based financial planners.

This particular client came across my desk with a net worth which was directly tied to Citigroup.  Since she worked in the legal department there, she was offered ESOPs (employee share owning programs), options, among other ways to buy C, and boy did she take advantage.  Well, I am no investing expert nor do I pretend to be (we have a different specialist for investing) but this sort of deficiency SCREAMS at me.

So I talked to the planner, who had noticed the same thing, he said he would talk to her ASAP and attempt to have her diversify.  Her response, and I am not joking, was “Citigroup is a solid company and there is no need to diversify.” Lets fast forward 18 months…


From July 13, 2007 until today, C is down over 97%. 

Most Ivestors Need to Diversify

Was this woman wrong to invest in C? Without any reserves I can say NO.  Was this woman wrong not to diversify? Without any reserves I can say YES.

There are those bloggers, investors, and general people, that don’t believe in diversification.  One clear one is Warren Buffet….wow a good example!  Well you know what I AM NOT BUFFET and CHANCES ARE YOU AREN”T EITHER.  Let me make this clear we are talking about your investment account, not a privately owned business which I think deserves its own considerations.   Almost more importantly, Buffet even tells us…we aren’t him

If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than world, then I believe in extreme diversification.

Some more Examples of why YOU Should Diversify

From July 07 to Today (3/4/2009)

  • GE down 77%
  • GM down 92%
  • LNC down 88%

Were there winners (or at least less of losers in this market lol)? Yup, and a well diversified portfolio would have at least provided you from some of the losers since any mutual fund can’t hold more than 5% of their assets in one company.




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