The most abused word in finance is “Diversification.”
Wall Street knows this.
And the Boyz – guys like Jim Cramer – take advantage of the small investor by telling you to be diversified.
Ironically (or NOT) they very conveniently offer you multiple ways to diversify with fancy ETFs and mutual funds.
But what they won’t tell you is how you’ll likely end up being over diversified.
As a result, you end up underperforming the market most of the time.
It reminds me of a story my doctor once told me that the reason people get fat is because they eat more than their body needs.
It makes perfect sense when you think about it.
His advice to patients was simple.
Doctor: “When you’re craving that bag of chips or chocolate cake, instead of eating them, drink a bottle of water. And if the craving comes back…drink another bottle of water.”
And this got me thinking about how most investors get fat by over indulging when buying stocks.
Huh?
Getting Fat/Diversified Buying Stocks
So, because Wall Street pushes diversification, investors can’t figure out how to curb their appetite when it comes to diversifying…especially in the case of buying mutual funds and ETF’s.
READ: “Another Reason to Hate ETF’s” September 4, 2017
Example: most 401k offers soooo many choices.
And they’re told that by spreading their money around you become well diversified.
WRONG!
Worst Word in Finance
And 2022 has proven that ‘diversification’ – according to Wall Street standards – has been a nightmare.
Simply stated ‘diversification’ is the most abused word in the financial industry.
As a result, most investors totally miss the fact that they’re duplicating their efforts via their brokers “diversifying” methods.
Why?
Because most of the funds/ETFs they’re in are all buying the same stocks.
So much for diversification.
The other big excuse for eating too many ETFs/mutual funds is that their “financial advisor” tells them it’s a good idea.
That’s kinda like a fat person telling you it’s okay to indulge yourself with cookies.
Learn how to avoid getting “size challenged” and losing money when the markets meet Political Chaos in 2023 by reading our December newsletter (HERE).
It’s easier than going on a diet.
And it’s a lot healthier for your portfolio.
Share this with a friend…even if they’re skinny.
They’ll thank YOU later.
And tell them: We’re Not Just About Finance.
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following an asset alocation, that you seem to villify, may be bested by some financial advisors, but for modest investors without large portfolios the general asset allocation model works well enough in most “normal ” times.
I admit, with the zero interest enviroment for 14? years since Lehman bros. plus Q-E to infinity it gives negative return to
all fixed income investments, dragging down perfomance severely to conservative investors unwilling to take much risk. But a few index funds with low expense ratios beats most so called experts long term, without all the whip sawing that makes one crazy. One’s best bet is to get your primary residence paid for, and if possible, some rental or renal properties by retirement to help with the vissisitudes of life and your old age.