In a diet, fiber is good. Dietitians encourage us to incorporate it into our daily nutrition. But balance is also important, so we diversify our food intake by adding other nutrients.
So, yes, fiber is good, but too much of a good thing can throw your system out of whack.
Loyalty has no place in investing
As simple as that sounds, the same concept pertains to your investments — in particular, over-allocating your portfolio to a single stock. Maybe that stock has treated you well for years, and as a result, it has earned your loyalty. Perhaps you purchased the stock for many years because it was the company you worked for, or maybe you inherited it.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
As a result, the decisions you are making — or failing to make — about the stock could be based on an emotional attachment rather than what’s financially wise.
Mixing emotions with investments rarely provides an upside, and too often, the risk is greater than the reward.
The solution is to look at your portfolio objectively, and for that, you may need guidance from a financial adviser. Ask yourself, “What can I gain, and what could I lose?”
You only need to look at what happened in 2008-09, when the stock market took a tumble, to know the financial impact if you’ve placed all your eggs in one basket. You should manage your risks rather than take risks.
It’s important to manage your portfolio through diversification. Incorporate different asset classes, such as equities, fixed income and cash.
To review:
- Investors often over-allocate a portfolio to a single stock.
- Mixing emotions into investing needs to be avoided.
- Concentrated holdings in one company should be avoided because doing so poses far greater risk than potential reward.
- Investors need to stay diversified across asset classes, sectors and styles.
- Investing is a process of managing risk, not taking risk; asset allocation is key for long-term investing.
- The overall risk increases dramatically when one stock comprises a large portion of someone's portfolio.
- An investor who holds a large position in one company should develop a plan to either divest or hedge his or her risk.
If you haven’t rebalanced or taken a look at your overall asset allocation, now is a great time to do so and make needed adjustments to bring your allocation back to your target.
In other words, buy some more baskets and spread those eggs around.
Rozel Swain contributed to this article.
-
4 Career Moves to Make Now if You're Worried About a RecessionWorried about a recession? These steps to protect your job prospects will help you professionally whether a downturn develops or not.
-
How StoryCorps Works and How You Can Tell Your StoryStoryCorps has recorded conversations between thousands of people, and anyone can participate. National facilitator Alan Jinich explains how to share your story.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRAMillions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest RatesWith potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
-
Simple Ways to Save on Back-to-School Shopping This YearSet a budget and stick to it, scour the house for what you already have, decorate backpacks and lunch boxes with your kids and consider buying some items during holiday sales.
-
The Seven-Day Financial Reset: A Simple Plan to Get Control of Your Money, From an ExpertSometimes, getting unstuck requires a reset. These practical steps can help you tackle your money issues and feel less overwhelmed by it all.
-
Three Pros (and Four Cons) of Hiring Multiple Financial Advisers: The View From a Financial AdviserThere's nothing to stop you from working with several financial advisers instead of just one. But take a balanced view of the risks and rewards first.
-
I'm an Annuities Expert: Here Are Two Ways to Use Annuities to Benefit From the OBBBTo qualify for a new tax break included in the One Big Beautiful Bill Act, some older adults need to lower their taxable income. Annuities can make that happen.
