There is a lot that has been written on the topic of diversification in investing. Generally diversification is understood to mean dividing your investment assets up among types that move in opposite or uncorrelated directions so that they’re all not moving up or down at the same time.
Over the years as I’ve worked with prospective clients and even clients who are slower than others in moving all assets under our purview, I’ve noticed that some of them may have misunderstood proper diversification.
What I have noted is that some individuals or families have set up their accounts across multiple custodians. Some of their accounts are at Fidelity, some of their accounts are at Schwab, some of the funds are at the company retirement plan, etc. Because they have spread out their money into multiple financial institutions, they are under the impression that they have spread out the risk of loss. Not so.
It’s possible to have similar investments in the accounts at Fidelity, Schwab, and the 401(k). Diversification relates to the investments themselves, not how many financial institutions they are spread out among.
If you have any questions about whether you’re properly diversified, contact me.
