Is Diversification Really Important?

When it comes to investing, you have probably heard the old adage that tells us: “Don’t put all your eggs in one basket. This is sound advice indeed. But let’s consider diversification.

If you have too large a portion of your total investment assets invested in any one security or type of security, you may experience problems at some point down the road.

Murphy’s Law tells us that, “Anything that can go wrong probably will.”

When it comes to investments, Murphy certainly knew what he was talking about.

No matter how good and solid an investment opportunity might appear to be, there is always the possibility that something can—and will—go wrong.

If you were to talk with a long time Enron employee whose retirement portfolio consisted mostly of company stock, you would hear how it felt to be totally wiped out overnight, to see their plans for a comfortable retirement evaporate before their eyes.

Or consider the case of a certain publicly traded bank, which had long been one of the highest dividend paying stocks in America.

Many Americans depended on the nice comfortable dividend income that came from owning the stock of the bank prior to the financial crisis of 2008. Then the bank suddenly cut their dividend to one cent per share and, overnight, became one of the lowest dividend paying stocks in the country.

Diversification is a powerful investment tool that can help protect you from concentrating too much risk in any single security or class of investments.

Consider diversifying your investments. Spread your eggs over many baskets. You will be safer in the long run.

Be sure to watch our Financial Briefing video on this topic, “Is diversification really important?”

Disclosures: Diversification does not guarantee investment returns and does not eliminate the risk of loss. Investing involves risk, including possible loss of principal, and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this piece is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances.  The opinions expressed herein are those of the author and not necessarily those of United Capital Financial Advisers, LLC.  Opinions expressed are current as of the date of this publication and are subject to change.