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Our Western Colorado Overconcentration Law Firm Helps Investors Explore Their Legal Options
Western Colorado Overconcentration Law Firm
Our Ridgway, CO Securities Attorneys Are Here To Help Investors Throughout The Western Slope Explore Their Legal Options
For most investors, proper diversification among their investments is important to maximize stability and safety while decreasing the risk of loss. Unfortunately, overconcentration continues to be a serious issue that can lead to portfolio losses. Contact the Ridgway securities law office of Shepherd Smith Edwards and Kantas (investorlawyers.com) if you suspect a failure to diversify by your financial advisor. We can help you explore your legal options.
Why Excessive Concentration Can Be Harmful For Many Colorado Investors
Unless you are a sophisticated investor who is used to taking high risks and using overconcentration as an aggressive investing strategy to maximize returns, it is better for you to have an investment account that doesn’t place “all of its eggs in one basket.” You won’t want too much of your money invested in a particular stock, mostly alternative investments, or a single industry.
Your investments in your portfolio should be aligned with your financial goals, risk tolerance level, investing time horizon, net worth, level of investing experience, and age. It should also be properly diversified with a balance of investment types. This can help offset any serious outcomes if one of your assets ends up failing or proving fraudulent.
An Investor’s Portfolio Can Become Overconcentrated in Different Ways:
Concentration caused by asset performance: This is when a particular investment performs so well relative to your other investments it starts to take up a significantly larger percentage of your brokerage account. Your broker-dealer should be monitoring the activities in your account and making necessary adjustments so that this kind of overconcentration is corrected.
Correlated asset concentration: An investor has a variety of investments, but they are all the same kind of investment type or within the same industry or geographic region.
Intentional concentration: This is when the investor makes the deliberate choice of investing more of their money in a particular asset or asset class. You may have authorized your broker to make this move. However, the financial advisor needs to make sure you are sophisticated enough of an investor to understand the risks and possible outcomes.
Illiquid investment concentration: When your portfolio ends up with too many illiquid investments—even if they aren’t the same kind of product—this can make it hard for you to sell any of them quickly in the event you were to need funds. There may even be surrender fees for selling certain investments, such as variable annuities, too early. This can lead to losses for you.
Concentration in company stock: When an employee places too much of their life savings in an employer’s stock.
If you are working with a financial advisor, it is their responsibility to make sure your portfolio is properly diversified with different kinds of financial products and stocks within various asset classes. They should be regularly rebalancing your account to see if adjustments need to be made as a way of mitigating illiquidity risks.
Yet overconcentration in investors’ accounts happens way more than you would think. For example, a broker may have deliberately disregarded your best interests and excessively concentrated your portfolio with too many privately traded Real Estate Investment Trusts or illiquid Regulation D offerings. Perhaps they did this because they wanted to earn higher commissions. Financial advisor inexperience or negligence could also be at play.
Brokerage firms are required to properly oversee their registered representatives and activities in customers’ accounts. It is their duty to detect red flags indicating possible overconcentration and make the necessary adjustments before serious portfolio losses happen.
How Can Our Ridgway, Colorado Excessive Concentration Lawyers Help?
If you live in the Colorado Western Slope, Shepherd Smith Edwards and Kantas is happy to speak with you and assess whether overconcentration played a part in your investment losses. You want to work with trusted Western Colorado failure to diversify attorneys that have the skills, knowledge, and resources to maximize your chances for a full recovery.
Call (970) 239-7085 or (800) 259-9010.
Our Western Colorado Securities Law Office
241 S Elizabeth St #500
Ridgway, CO 81432