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Diversification is a fundamental principle of investments. A well diversified portfolio should contain investments in multiple companies, industries (e.g., financial, healthcare, technology, etc.) and types of investment products. Overconcentration occurs when a stockbroker invests too much of a client’s money in one particular company, market sector or type of investment product. Investing a portfolio in a range of companies, industries and types of investment products reduces risk and may increase returns.
Overconcentration in a Single Company
When an investment portfolio contains a disproportionate amount of a single company’s stock, investors can be at risk for excessive losses. The investment portfolio can drop sharply if the company has disappointing returns. A well diversified portfolio can help protect the investor because some stocks may decrease in value while others may remain stable or increase. Investing in multiple companies reduces risk since the stocks will not likely all lose value at the same time and at the same rate.
Overconcentration in an Industry
A properly diversified portfolio can protect individuals from experiencing extreme losses as a result of market fluctuations. Industry sectors move up and down at varying rates and at different times. When a portfolio is concentrated in a single industry, the value of the portfolio can drop dramatically with normal market fluctuations and investors can sustain devastating losses when a sector struggles. For example, when the “dot-com” bubble burst in 2001, investors who were overconcentrated in internet and other technology companies suffered shattering losses when many of these companies collapsed and stock prices plummeted.
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Overconcentration in One Type of Investment Product
Over-concentration can also occur when investments are limited to just a few types of securities or asset classes. A well designed portfolio should include a mix of investment product types such as common stocks, preferred stocks and bonds. When a stock broker fails to adequately diversify the types of investment products within a portfolio, this overconcentration substantially increases the risk of investment losses to a client. Simply put, a stockbroker should never put too many of your investment “eggs” in one basket.
The Securities Fraud Law Firm of Zamansky LLC Can Help
The securities fraud attorneys at Zamansky LLC have decades of experience representing investors who have suffered serious financial losses because their stockbrokers failed to diversify their investment portfolios. Our investment arbitration lawyers work with all types of investors across the United States and abroad, ranging from small individual investors to sophisticated high-net-worth clients and institutions.
When a stockbroker fails to properly diversify your portfolio, the broker or the brokerage firm may be liable if the investment declines in value. At Zamansky LLC our attorneys have the specialized legal skills and in-depth knowledge of the industry to successfully pursue your overconcentration claims. An experienced stock fraud attorney at our firm will personally investigate your case and examine your investment history to determine whether your portfolio may have suffered losses as a result of overconcentration.
At Zamansky LLC, our stock market lawyers know how to develop, present and prevail in overconcentration claims against stockbrokers and brokerage firms. Each investment losses lawyer at our firm is committed to providing personalized legal service. Our attorneys are relentless and will fight aggressively to recover the money that you have lost.
If you believe that you have suffered an investment loss due to overconcentration, call our securities fraud law firm today at 212-742-1414 or complete our contact form. We offer free, no-obligation initial consultations and respond to all inquiries within 24 hours.