Why Stock Diversification Should Scare the Heck Out of You

Why Stock Diversification Should Scare the Heck Out of You

One of the most popular pieces of conventional retirement planning advice is to make sure your portfolio is properly diversified, with the right mix of stocks and mutual funds because, in the long run, that’s what will give you the retirement lifestyle you desire. I say that’s pure baloney.

Variable investments will forever remain variable, no matter how many of them you lump together. To think that by purchasing bits and pieces of stocks you’re somehow eliminating market risk is simply laughable. Sure, diversification may reduce your market risk, but it will never, ever eliminate it.

Veteran trader, renowned risk expert, and New York Times best-selling author Nassim Nicholas Taleb in his book Fooled by Randomness echoed the famous quip about Shakespeare, that if you set an infinite number of monkeys in front of an infinite number of typewriters, one of them would produce an exact version of Homer’s Iliad (notice the key word here is infinite). However, Taleb added, “Now that we have found that hero among monkeys, would any reader invest his life’s savings on a bet that the monkey would write the Odyssey next?”

What I find amusing is that with all the exotic, fancy computer models and “expert market predictors” to date (you know, those folks who know exactly where the market is headed?), no one has yet been able to help any investor that I know of come up with that killer diversified stock portfolio that has escaped fairly regular beatings from the market. That’s why I wholeheartedly agree with the assertion of Burton Malkiel, a Princeton University economist, that “a blindfolded chimpanzee throwing darts at the Wall Street Journal can select a portfolio that performs as well as those managed by the experts.”

In case you haven’t noticed, every time the market plummets and investors who thought they were properly “diversified” lose significant portions of their nest eggs, these so-called experts – the very ones who came up with the “diversified portfolios” these investors were using – cite “improper diversification” as the reason their clients lost money. So would our esteemed experts kindly tell us, once and for all, what that magic mix is, instead of always playing Monday morning quarterback?

Oh, wait. They can’t. Folks, these experts don’t have crystal balls; they’re just like us, with no idea how the market will shift next until it happens. I guess what I’m trying to say is that this hindsight business isn’t working!

Here’s what I can tell you after nearly two decades of working with lots of successfully retired clients from all across America: since its origins, the stock market has been a pure gamble. But hey, it’s your money and your retirement, so you’re free to invest it whichever way you want to. All the best!

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Contact a professional at Laser Financial Group TODAY to set up your complimentary, no-obligation consultation and discover ways to make sure you're protected from the only sure thing we know about the stock market: its unpredictability! 877.656.9111 or LaserFG.com