One of the mistakes many retired people make regarding their portfolios is confusing investments with collectibles or mementos. I know, it sounds ridiculous. But you have to give this a listen. It’s a real problem.

When I was still working as a broker and an advisor, a good friend paid me the ultimate compliment. He asked me to look at his mother’s portfolio to see if I could help her out.

[ad#Google Adsense 336×280-IA]Two seconds into the review, I could see the problem.

And I knew exactly what she had to do.

She had 80% of her money tied up in one stock, the company that employed her husband for decades.

I told them she had to diversify.

The setup was very risky, as risky as holding small caps or speculative stocks.

Just one problem with this company, and she could go broke.

The son gave me a look I’ve seen before. It was the look you would give a broker to say, “you’re doing this to generate commissions.” We were still on a commission structure back then.

I explained to him that my concerns weren’t about commissions and suggested that, in fact, I would help his mother, commission-free. I explained that holding so much of her money in just one stock was financial suicide.

The commission-free offer convinced him, but not his mother. She wanted to keep all of the stock, not because it was a good investment… or even for the dividend. Instead, she stated that if it weren’t for the company, she and her husband would have nothing.

She couldn’t bring herself to sell any of it.

They had done well because of this company. And that was true, but attaching sentiment to stock holdings also meant she didn’t own it just as an investment, but as a memento. The stock was a memory of her husband and their life together.

And it isn’t only about allegiance to a partner or a company.

In Baltimore, where I worked as broker, everyone’s favorite stock (including retirees) was Baltimore Gas and Electric, BG&E.

And no one, no matter how much they had made in the stock, would sell it. Not a single share. Even suggesting to take a profit and buy a better utility would mean you’d lose an account, guaranteed.

BG&E was an excellent hold, and it made money until the electric utility industry was deregulated. When that happened, BG&E dropped like a rock, and finally, under a different name, went under. Much of that money vaporized, I’m sure.

And these two stories are not isolated incidents. This is more common than you might realize. I have seen it too often.

I had another client who had 60% of his wealth in one pharmaceutical stock, the company he retired from. And he gave the same reason as my friend’s mother for not diversifying: The company gave him everything.

In the 2000s, the stock dropped 70%… and it has never recovered.

Too many well-intentioned people fall into this trap. They own too much of a certain stock, and they think of their shares as collectibles or mementos, rather than investments. Or they think the shares are too good to sell.

Believe me, they are not.

Stocks are there to make money and only to make money. I don’t care who left them to you in their will, what company made your life better or what kind of sentiment you have attached to them.

Oversized positions are nothing but big disappointments in the making. Believe it!

You have to use all of the available tools to protect your assets, and diversification should be first on your list.

Good investing,



Source: Wealthy Retirement