Failure to Diversify or Overconcentration of Investments in Accounts Can Create Unnecessary Risk
One of the most fundamental rules of investing is to diversify your portfolio. Putting a large percentage of your money into one stock or one category of investment can put you at serious risk of financial loss if the company or industry fails to perform as expected. It is your financial advisor’s responsibility to recommend the right mix of investments to help you reach your goals without exposing you to excessive risk.
It is widely understood in the securities industry that investors need proper asset allocation, which is diversification among various asset classes; i.e., cash, bonds, and equities. They also need further diversification by geography, sector, issuers, styles, credit ratings, etc. Brokerage firms understand the importance of asset allocation and diversification. For example, one firm published the following in its marketing materials:
No single asset class performs best in all economic environments. Therefore, experts suggest that a sound investment portfolio should be diversified – that is, invested in a variety of asset classes that have distinct, yet complementary, characteristics.
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Rather than just one asset class, an asset allocation strategy includes a blend of different investments that reflects your specific financial goals and tolerance for risk. The graph below illustrates three sample asset allocation strategies classified by asset type and risk tolerance. These sample asset allocations are designed for illustrative purposes and provide an example of how each strategy might be structured.
The easy to understand explanation for asset allocation and diversification is simply you “do not put all of your eggs in one basket.” In fact, it has been determined that 91.5% of a portfolio’s performance is a direct result of asset allocation, whereas only 6.7% of the performance is linked to security selection and a mere 1.7% to market timing.
Many of our cases in the last seven years have involved a broker’s failure to diversify investors’ accounts. For example, thousands of investors in Puerto Rico lost billions of dollars because Puerto Rico brokerage firms over-concentrated their best clients’ accounts in Puerto Rico bonds and Puerto Rico denominated closed-end bond funds, which could only be purchased by residents of the island. The over-concentration of clients’ assets in fixed income securities of a single geographic area was a disaster when the Puerto Rico credit market collapsed in September 2013. Another example is the impact the March 2020 COVID-19 market crash had on investors whose assets were over-concentrated in the energy, hotel, airline, and/or cruise-line industries. Those investors who held diversified portfolios weathered the storm while the others suffered significant losses, particularly those investors with leveraged and over-concentrated accounts that received margin calls and were forcibly liquidated.
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No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.- Ramon Flores-Esteves -
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Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.- Maurice Z. -
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Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!- Severiano L. -
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This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.- Astrid M. -
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Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.- Jose A. C. -
- "In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."
No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.- J. Blanco -
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Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.- Mayra A. -