Over-concentration:
Brokers have the duty to recommend that the
customer’s account be diversified among different
investment classes, including cash, stocks, and bonds,
and across wide industry sectors within classes. Proper diversification
is the best way to minimize risk which avoids excessive losses. If
a broker concentrates too much of your portfolio in one class of investment,
such as stocks, or puts too much of your money in certain sectors, such as technology
or aggressive growth, you face a much greater risk of suffering a large unrecoverable loss.
Many investors lost a significant portion of their retirement funds beginning in
early 2000 because their brokers had over-concentrated their accounts
in high-technology stocks and aggressive growth stocks that plummeted in value. Recent
studies have shown that a properly allocated portfolio would have faired very well
after year 2000 because bonds and fixed income investments did so well.
A broker who fails to recommend a properly diversified account can be liable for
your losses.
|