Cheering for just one favourite team is fine. Owning just one investment and hoping for success is dangerous, writes Peter Watson.
Our beloved Toronto Maple Leafs just taught us a lesson about diversification.
Since the last time the Leafs won the Stanley Cup in 1967, fans have been hoping for another triumphant hockey season.
The long wait continues.
Again, their attempt at greatness failed and as the playoffs continue the Leafs are on the sidelines wondering what went wrong this year.
The Leafs are my favorite team and I always want them to win. All my hockey focus is tied up in just one team. Forget the idea of diversification with the hope of other Canadian teams winning. That’s right, all my hockey eggs are in one basket in an all or nothing wishful thinking.
No harm done. It is only a sport and the outcome does not affect my overall well-being.
The all or nothing mentality works fine when the outcome has no significant consequences.
When it comes to investing, things are drastically different, however.
My opinion is that it’s much more appropriate to own a well diversified portfolios of stocks, bonds and mutual funds.
Do not concentrate your portfolio in one or just a few investments. You will never hit a “home run” like those who owned Apple stock.
Fortunately, you will never strike-out like those that had a concentrated position in Nortel before the high-flying Canadian tech giant virtually evaporated to just pennies a share.
Most investors want a reasonable return. The strategy to achieve that is to own a diversified portfolio that spreads the risk.
Diversification is the key and is an investor’s chance to be proactive at managing normal investment risk.My suggestion is to look at your portfolio and ask yourself the simple question: are you well diversified?
Diversify your portfolio.
And, Go, Leafs, Go!
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. Peter Watson provides wealth management services through Watson Investments.