The lesson to be learned about the risk of losing money is the importance of diversification, writes Peter Watson.
Bridging Finance Inc was a well-known business that raised money from private investors and lent that money to companies. It has been in receivership since 2021.
During the good times, Bridging managed $2 billion for 26,000 investors. Now it is estimated that most of that investment will be lost.
There are two lawsuits against the company, totalling just under $2.5 billion. Plus, there are allegations that investor money might have been used inappropriately. Senior company officers conduct is under review.
Investors have an advantage. There are thousands of different investments you can choose from. There is no need to overweight your position in any one investment.
That means if one investment you own has a remarkable increase in value, only part of your portfolio will benefit. The upside is if that company fails you will limit your loss.
Limiting losses is the starting point in the construction of an investment portfolio.
Some companies have poor financial performance for their investors. Some of these companies could go bankrupt. There is no reason to overweight a position regardless how confident you are about a specific opportunity.
Diversification is an important strategy to avoid a significant loss in one investment.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com