The diversification gap

Lord Grantham of Downton Abbey took a risk with his family wealth and invested an inordinate portion of it in a single stock that went bust.

It was an unwise thing to do, even if the investment had worked out, because he had a choice.

Many don’t have that.

Whether it’s a job, a startup, one’s education and credentials… these investments form highly concentrated portfolios for the vast majority.

If there are savings on the side, allocated to securities or mutual funds or such, for most this is disproportionately small according to the economic headlines and statistics.

No matter the size, moreover, wealth is best measured on a risk-adjusted basis – particularly in a time of elevated volatility…

… in economic and industrial directions, in technology, in styles and preferences, in opportunity.

Especially in such a time, the way to manage risk and optimize potential is through thoughtful diversification…

including the proportionate reduction of high concentrations that increase downside exposure and limit the upside to one possible path.

The widely reported wealth gap, which apparently is growing, is among other things a diversification gap.

This, in many ways, is the more significant.

It limits or magnifies choices, shapes perspectives, impacts outlook… in short, all those variables that drive markets, enterprise, and everything.

The goal isn’t wealth as an end, but the portfolio… big or small.