Overconcentration

Knowledgeable Attorneys Educating Investors Against Questionable Risks of Overconcentration

Examining the dangers of not diversifying your investments

Most investors seek the help of a broker or financial advisor because they lack the knowledge, experience or confidence to invest their own money wisely. If the broker or advisor acts properly, the investment strategy will reflect the needs and risk tolerance, among other things, of the investor. Overconcentration is a risky and speculative strategy which, all too often, benefits the broker or the firm, but not the investor himself or herself.

At The Frankowski Firm, we recognize the often-subtle warnings signs of overconcentration, and protect the rights of those who have sustained financial losses because of broker or advisor negligence. If your portfolio is not appropriate for your goals, or aims to benefits your broker or advisor instead of you, we can help.

What is overconcentration?

As the name implies, overconcentration occurs when an investment portfolio constitutes far too narrow a scope of investments: a handful of stocks, one specific type of stocks (like mutual funds), one specific industry, etc. This practice could have devastating effects to the portfolio as a whole, because you risk losing everything if these investments take a hit. 

The “safe zone” for most investors’ portfolios is no more than 5-10% concentration in any one type of various investment or industry. In this case, even if one investment class or category struggles, the entire portfolio can lose no more than 5-10% of its total value, a still substantial but not insurmountable loss for most investors.

How do I know if my portfolio is diverse enough?

It is startlingly easy for inexperienced investors to fall prey to this type of advisor or broker fraud. For example: let us say that your investor recommends a series of mutual funds which appear to be diverse. What you are not told, however, is where those funds are invested. On the surface, it may look at those your portfolio covers a wide range of investments, when in reality, all of those mutual funds are invested in the oil and gas industry.

The truth is, most investors do not realize they have been wrongly led until it is too late. At The Frankowski Firm, we fight to secure damages for our investor clients who have sustained heavy losses because of mismanagement or acts of securities fraud. We are experienced FINRA arbitration attorneys who have successfully represented clients throughout the country; let us help you, too.

If your investments were clustered too tightly and you lost money, contact our trusted attorneys

If your portfolio exhibits the danger signs of overconcentration, or has lost significant funds due to overconcentration, call The Frankowski Firm at 888-741-7503 or complete our contact form to discuss your legal options.

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Disclaimer: Mr. Frankowski is licensed in Alabama and Florida. He is not licensed in any other state, including Nevada and California. Mr. Frankowski has represented investors from all over the country in securities cases including: Alabama, California, Colorado, Florida, Georgia, Illinois, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, New York, North Carolina, Tennessee, Texas.
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