When discussing diversifying your portfolio
for a business succession plan, BE CAREFUL.
Here’s a true story that just happened to me.
In reviewing a clients’
portfolio he said, “Look. I have
Microsoft, Apple, Google and GE. I’m
diversified”. Well one could easily
argue that 4 stocks is not make much diversity.
Let’s give him some leeway and say yes you’re diversified. However, all those stocks are in ONE CATEGORY. They are all Large Cap Growth stocks. You
see, one can easily say I’m diversified because I have different stocks. But they could all be in the same
category. This also applies to mutual
funds. Initially there are NINE ways to
truly diversify.
In the game of tic-tack-toe,
you have 9 squares, three across and three top to bottom. This is the same for a diversified
portfolio. The three across would be,
Value, Blend and Growth. These refer to
the STYLE of the investments. Going from
top to bottom you have the SIZE of the securities, Large Cap, Mid Cap and Small
Cap. It would look something like this.
VALUE BLEND GROWTH
LARGE
MID
SMALL
An investor could have Large
Cap Value. Mid Cap Blend and Small Cap Growth.
I am not suggesting that you fill in all nine squares but can you see
how you’re diversifying? The next few articles will deal with an explanation of
some of these areas.
As with all investments, be sure to read a
current prospectus and understand the risks, charges, expenses and goals of the
investment in question.
for a business succession plan, BE CAREFUL.
Here’s a true story that just happened to me.
portfolio he said, “Look. I have
Microsoft, Apple, Google and GE. I’m
diversified”. Well one could easily
argue that 4 stocks is not make much diversity.
Let’s give him some leeway and say yes you’re diversified. However, all those stocks are in ONE CATEGORY. They are all Large Cap Growth stocks. You
see, one can easily say I’m diversified because I have different stocks. But they could all be in the same
category. This also applies to mutual
funds. Initially there are NINE ways to
truly diversify.
you have 9 squares, three across and three top to bottom. This is the same for a diversified
portfolio. The three across would be,
Value, Blend and Growth. These refer to
the STYLE of the investments. Going from
top to bottom you have the SIZE of the securities, Large Cap, Mid Cap and Small
Cap. It would look something like this.
Cap Value. Mid Cap Blend and Small Cap Growth.
I am not suggesting that you fill in all nine squares but can you see
how you’re diversifying? The next few articles will deal with an explanation of
some of these areas.
current prospectus and understand the risks, charges, expenses and goals of the
investment in question.