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Commentary: Are you really as diversified as you could be?

I’ve seen hundreds of investor portfolios and a common thread runs among them. Most investor portfolios hold only stocks, mutual funds and bonds. Most are managed by a large national firm or local advisor. Many investors leave the buying decisions to these “experts.” Most investors have no idea what or why they hold what they do, and many investors paid not only the management fee to the firm but were, unbeknownst to them, sold a loaded fund that may have performed no better then the overall market. (Loaded mutual funds charge a percentage on top of your brokerages commission).

The real tragedy in all of this is that most if not all of these portfolios I saw got hammered in the recent economic crisis.

What’s going on here?



The investing public has, in my opinion, been sold a bill of goods.

Not only do many of these paid money managers underperform the general markets indexes, these same firms continue to preach the buy and hold philosophy and to “hold for the long term.” Many firms charge their clients yearly fees and sales commissions on top of selling them loaded mutual funds, yet end up doing no better then someone just buying a market index themselves and paying no fees whatsoever.




True diversification is not just buying a bunch of stocks, mutual funds and bonds and sitting.

Just look at the performance of the Dow over the last decade. It’s lost about 10 percent in a stomach churning decade of ups and downs that certainly didn’t add any years to your life let alone money to your pocketbook. Add in your loss of purchasing power from the US dollars’ decline and you’re probably looking at a 25 percent hit or more to your overall financial health. Not exactly the kind of return we’d expect from a market you should “buy and hold.”

Holding only stocks, mutual funds and bonds depends on a rising stock market and growing economy, and if that isn’t happening, your life savings starts to dwindle.

Since diversification also means balance, one should look to other assets to complete a diversified and balanced portfolio and that means examining the other investments that are available.

Foreign currencies can help offset a falling US dollar and can be easily purchased through a variety of currency funds. Gold and silver are in a multi-year bull market and has more then quadrupled since the year 2000. Dividend stocks can pay you even when markets go nowhere. Moving money offshore is also a way to diversify and is easier to do then most people think. There are many other investments one can own to truly diversify their money yet I saw few if any of these “full service” managed portfolios holding these alternatives.

Investors found out the hard way that the “buy and hold” stocks and bonds for the long term doesn’t work. Buy and holding stocks and mutual funds works fine in up markets, but so does a monkey and a dart with a Wall Street Journal. Like an umbrella that works fine on a sunny day, but does nothing in a rainstorm, this buy and hold strategy failed in the last downturn and will probably fail again in the next one.

For true diversification, you must broaden your investment horizons, think outside the box and look for advisors that know what true diversification is, and that isn’t just holding a basket of stocks and bonds.

Buy and hold for the long term? I don’t know how much “long” I have left in my “term”.

Marc Cuniberti hosts the financial radio show “Money Matters” on KVMR FM 89.5 and 105.1 or http://www.kvmr.org. Visit his website at http://www.moneymanagementradio.com.


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