Over-Concentration or Failure-to-Diversify

You may be familiar with the saying: “Don’t put all your eggs in one basket.” This saying is especially true when it comes to investments.

Unless you expressly tell your broker that you are interested in amassing a large position in a single stock (or in two or three stocks), you broker has a duty to recommend suitable investments to you that are properly diversified across a spectrum of “non-correlated” asset classes, sectors, and geographical areas. Not only can this potentially boost your overall investment returns, but it can also help to limit your exposure to unnecessary investment risk — because if one investment (or asset class or sector) in your account underperforms, it can potentially be offset by another investment (or asset class or sector) in your account that does well.

For example, if your account is over-weighted in stocks (without a reasonable allocation in fixed-income investments or mutual funds or cash) or in growth stocks (without a reasonable allocation in value stocks or dividend paying stocks) or in small cap stocks (without a reasonable allocation in mid-cap or large cap stocks), your portfolio could be exposed to unnecessary risk if the economy changes or the stock market slows down. Similarly, if your account is over-weighted in stocks (or bonds or mutual funds) issued by companies in the technology sector or the financial sector or any other single sector, your portfolio could be exposed to unnecessary risk if that sector runs into any particular difficulties or cyclical changes.

If your broker over-concentrated our account in a particular security or asset class or sector or if he or she failed advise you to better diversify your account, contact Jacobson Law P.A. to discuss the specific facts of your case. You may have a claim and could be entitled to recover damages.