Imagine a friend telling you his investment success story: he held a tech stock that skyrocketed, sold it, then paid to take his wife on their dream vacation. The allure of a single, successful stock can be irresistible. But before you put all your eggs in one basket, consider the risks that come with such a narrow focus.
The Story of a “Star” Stock That Fell
Years ago, I worked with a client who inherited a substantial position in a major airline stock. For years, this stock was the crown jewel of his father’s portfolio, funding family milestones and creating a sense of security. After his father passed away, I recommended diversifying, but the client felt he shouldn’t sell the investment since his father had trusted it so much. Unfortunately, when the airline faced a devastating scandal and its stock tumbled, his decision to maintain a large sum in a single company sent shockwaves through his entire financial plan.
The reality is that relying on one stock is like playing financial roulette. Even the most successful companies can face unexpected setbacks.
The Wisdom of Diversification
Index funds and exchange-traded funds (ETFs) are tools that can simplify diversification. They spread risk by holding a wide range of stocks, bonds, or other securities. By doing so, they protect against the unpredictable failures that can devastate a portfolio consisting of an individual stock. Index funds are a type of ETF that follows a market index, like the S&P 500. ETFs include both index funds, which are passive and follow an index, and actively managed funds, where experts choose stocks to try to beat the market.
Why Diversification Matters Today
The markets feel more volatile than ever. If you’re approaching retirement or managing assets in multiple countries, ensuring that your portfolio is balanced and diversified can provide peace of mind and a more secure future.
If you feel overly stressed by having to make complex investment decisions, sign up for a free Cross-Border Financial Evaluation at profile-financial.com/call to see if we can help.
Published April 8, 2025.