At the height of the “tech boom”, in 1999, it seemed there was no end to the potential growth of tech stocks.  Headlines read, “We’re in a new economy!”  Writers told us, “The economic rules of the past no longer apply.”  I had people say, “Why would I invest in a diversified portfolio when I can make so much more in tech?  That’s crazy!”  So people concentrated more and more.

Then in March of 2000 the stock market stuttered.  Investors weren’t concerned, at first.  After all, “The new economy can’t fail.  It’s the future.”  Then the market slipped more.   People started to get nervous.  Then it slipped again.  The tech stocks, that had such a meteoric rise, suddenly cascaded down.  By the time the collapse ended some investors had been wiped out completely.  And it wasn’t uncommon for people to have lost 90% of their net worth.

In contrast I had clients, who in 1999, seemed “crazy.”  They had diversified with good managers, across many asset classes to create well rounded portfolios.  They had good returns but not the “shoot the lights out” performance of some of their friends.  They weren’t the hit of cocktail parties where conversations revolved around the latest mystical internet stock.  But as the market imploded, they road it out with quiet confidence.  In fact through 2001 some of them never lost anything.  It wasn’t a joyous time but it was a lot more fun (though less exciting) than losing 90%.

Investors get in trouble when a couple of problems intersect.  First, they’re behind in saving.   Hey, all of us want more but some are in serious trouble.   It’s not fun to save.  There’s always something more exciting to spend money on than an investment.

So people find themselves behind the curve and need to make it up.  What do they do?  They concentrate in the latest hot investment figuring they don’t have time for normal returns.  That’s mistake one!

Then they combine this with a lack of time and expertise.   Successful concentrated investing takes both.  This combination creates the disaster.  And incidentally we seem to have one of these blowups every few years.  Ever wondered why?

So what do you do?  How can you get reasonable growth yet dodge the disasters?

The bible says, “Don’t wear yourself out trying to get rich. Be wise enough to know when to quit.” (Proverbs 23:4, NLT)

And, “Divide your investments among many places, for you do not know what risks might lie ahead.” (Ecclesiastes 11:2, NLT)

First, check your attitude. Ask yourself, “Am I wearing myself out trying to get rich?  Am I trying to get rich quick because I’m behind?  Am I sacrificing my health, family, marriage, job trying to make it up?”  Be honest with yourself.  Until you analyze your attitudes nothing positive will change in your actions.  But you can create changes that will enhance your life and get your financial concerns back in their proper place.

Second, ask yourself “Are my investments too concentrated? Am I trying to hit home runs or am I set up to have normal growth with some stability?  Am I betting on the recent returns of a particular investment or am I being reasonable in my expectations?”  How you answer will help you get a handle on the risks or rewards you can expect.  It can also keep you from blowing yourself up.  Now that’s worthwhile isn’t it?

Third, ask, “If I concentrate some of my investments will I spend the time to monitor them carefully and educate myself to understand them completely? Will I really become competent enough to be successful?  And will I devote the time to watching them consistently?”  If not you’re setting yourself up for a surprise.  And it may be exciting but it won’t be fun.

Quite honestly, most people don’t have the time to concentrate on investing.  They’re busy in their  marriage, family, career and sometimes just having fun.  Those are the best things in life anyway.  So focus on them.  Become great in those areas.  But don’t do that and then try to invest in a concentrated way on top of it.  You don’t have time for both.  So diversify, stabilize and put your investments on auto pilot so you can concentrate on the most important things.

Ok, before you click to another site, stop and ask yourself those three questions. Spend some time evaluating where you’re at.  Then make the changes needed to concentrate where you need to and diversify the rest.

What are your priorities?  What should they be?  Let me know what you discover.

“Diversify in stocks and bonds, as in much else, there is safety in numbers,” Sir John Templeton.

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Important Disclosures:

Douglas Armey, the LPL Financial adviser associated with this website, practices in Fresno, California and may discuss and/or transact business only with residents of the following states:  California, Idaho and Oregon.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results.

Securities offered through LPL Financial, Member FINRA/SIPC.  Member of Securities Investor Protection Corporation (SIPC).  For an explanatory brochure please visit www.sipc.org.          www.finra.org