What is Diversification and how do I know I have it?

by brendon on September 9, 2011

Kansas City investors and givers of financial and investment advice talk about the benefits of “diversifying-your-investments” and controlling risk.   If this is so important, how do you know it’s actually happening and is it possible to measure it?  Is it possible to hold the “advice-giver” accountable.

ANSWERS:  it’s called “standard-deviation” and YES you should hold the advice-giver accountable.

Most people believe they’re diversified when looking at the names of multiple mutual funds on their 401k and IRA statements.   If you don’t know what individual stocks and bonds are inside the mutual fund (I call this “under-the-hood), there’s a high probability your investments are concentrated in a single asset category like US Large Cap stocks–tracked by the volatile S&P 500 index.   Making investment account balances change even more rapidly is the high probability stocks and bonds in one mutual fund are also in other mutual funds you own.  This is called overlap and also measurable.

The first step to better performing investments and greater peace of mind is “knowin-what-ya-got”.  If you don’t know this—we need to talk!

Enjoy a good article further explaining diversification and the academic measure of risk everybody should know about their investments.   Click here for the article……

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