As a result, it is important for financial advisors and their clients to focus on three key factors:1. Portfolio Diversification – Investors should focus on strategy diversification and not security over-diversification (di-worsification); diversification is not achieved by allocating to hundreds of stocks, or multiple managers expressing the same type of investment or investing a small amount to an “alternatives” bucket.
2. Risk Assessment — Investors should work to identify, embrace, and combine the risk factors that they find attractive and believe will collectively provide the performance they desire from their portfolios.
3. Return on Invested Capital — Every investment an investor makes will have some type of risk associated with it, and therefore investors must be comfortable that the return characteristics are fundamentally attractive.
Investors need to truly understand what diversification is. This understanding will lead to the reduction of conflict of interest generated by the Wall Street bullies.
Please comment or call to discuss how this affect you and your portfolio.