| Humpty Dumpty sat on a wall; | | | | portfolio should not be populated by the latest "stock |
| Humpty Dumpty had a great fall. | | | | du jour", recommended by your broker. |
| All the King's horses | | | | The main way to avoid the problem is to find a |
| And all the King's men | | | | financial advisor who understands your goals and has |
| Couldn't put Humpty together again! | | | | the ability and willingness to help you reach them. |
| You know this tragic story. | | | | Lastly, if this has happened to you, I'm afraid you will |
| During the 45+ years that I have been a financial | | | | have to swallow some bitter medicine. You might have |
| advisor, I have seen this over and over and over again. | | | | to sell most or all of your holdings, and start over again. |
| A new client comes into my office and asks me to | | | | There is no sense in compounding a mistake into an |
| review their old portfolio. Very often it is littered with | | | | even larger mistake. |
| holdings that make no sense. It might have been | | | | Conventional wisdom states that your portfolio should |
| possible that each of those holdings was purchased | | | | be built upon a very strong foundation. This strong |
| for a specific reason at the time, but when put | | | | foundation should be comprised of high quality stocks |
| together it looks like a patchwork piece of cloth, a | | | | and high quality bonds. The best way to visualize the |
| crazy quilt. | | | | construction of your portfolio is to visualize a pyramid. |
| Investment professionals refer to this as a Humpty | | | | As we move up along with the slope of the pyramid, |
| Dumpty portfolio. This is a portfolio that is broken | | | | you might consider having smaller and smaller pieces |
| beyond repair. Truly, all the king's horses and all the | | | | of slightly higher risk investments. |
| king's man couldn't put this portfolio together again. | | | | Conventional wisdom declares that you should have |
| What's the lesson here? | | | | the proper amount of diversification. Conventional |
| How can you avoid being burdened with a Humpty | | | | wisdom is never the cutting edge. You may not to |
| Dumpty portfolio? | | | | double your money overnight with this philosophy but |
| And, if this does happen to you, what's the best thing | | | | you can be relatively certain that your money will be |
| to do? | | | | there in the future when you need it. |
| The most important lesson to be learned here it is that | | | | Conventional wisdom is generally right. Otherwise it |
| while it is important to trust your financial advisor, it is | | | | would be called conventional stupidity. |
| also very important for you to pay attention to your | | | | I grew up in Brooklyn, New York. When this specific |
| own investments. After all, it is your money. | | | | event happened, I was far away, on a business trip, so |
| It is important for you to understand that your portfolio | | | | I didn't see it, but I know a guy who knows a guy who |
| should have some coherence. It should be something | | | | did see it and he claims that Dumpty was pushed. |
| that matches your long-term financial goals. Your | | | | But that's another story. |