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Overconcentration of your investments can wipe out your portfolio

On Behalf of | Feb 3, 2023 | Investment Losses

The old expression warns us against putting all our eggs in one basket. It originally meant to keep your options open generally, but it certainly applies to investing. For most people saving for retirement, a diverse portfolio can curb excessive risk while still giving you the opportunity for growth.

Overconcentration harms investors in Kansas City

A financial advisor who recommends a client put their retirement nest egg in a single investment or small number of investments is overconcentrating and may be held liable for negligence.. This is defined as convincing a client to invest too much of their money in a single issuer and/or asset class. Overconcentration may not be the result of bad intentions, such as when an advisor becomes convinced that a particular investment is a “sure thing” and that all of their clients should put as much money into it as possible. But a responsible advisor would understand that market volatility and other factors can turn a “sure thing” into a disaster.

$1.6 million in damages

In a recent example, the Financial Industry Regulatory Authority (FINRA) recently ordered a former financial advisor to pay one of her ex-clients $1.66 million after almost wiping out the client’s retirement savings. Over the course of four years, the client’s accounts went from a value of nearly $715,000 to $26,842. A FINRA arbitration panel ruled that the advisor mismanaged the accounts by investing the money in leveraged 300 percent gold bull ETFs.

There are always risks associated with investing. But financial advisors owe their clients a legal duty to take reasonable steps to avoid unnecessary risk of loss. Violating that duty and your trust as a client through overconcentration is unacceptable.

If you think you have been a victim of over-concentration, please reach out to us for a free consultation.