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Over-concentration

Investments are less risky if they are properly diversified, which means that they are placed in a proper number of investments, each with a different set of risks, so that the entire investment portfolio doesn’t get clobbered if the market goes down in one or two areas.   Failing to properly diversify an investment portfolio is called over-concentration — i.e., it’s the same thing as putting too many eggs in one basket.  Investment advisers and brokers are — or should be — well versed in how to deal with this, and they shouldn’t allow you or any investor to take on undue risks due to over-concentration.  To put it another way, if you’re dead set on putting all your money in Apple, you’ll certainly find a broker who will handle that transaction for you.  Before he does, however, he should make sure you are fully aware of the risks that exist. If you want to study how bad this can be, research Apple’s history, particularly with respect to the i-Phone, the Mac, and the presence and absence of Steve Jobs as relating to stock prices.  Or take a look at the credit crunch in 2007-2008, and the effect it had on people with lots of money invested in bond funds backed largely by risky home mortgages.  Billions were lost, almost overnight.

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