Are You Diversified?

When it comes to portfolio construction, as well as portfolio allocation, one of the biggest areas that investors do not understand is the concept of dissimilar price movement. A simple example would be the idea of owning umbrella companies and sun tan lotion companies. Umbrella companies, unto themselves may be volatile, and sun lotion companies, they to would also be fairly volatile. However, when you add them together you see the value and the reality of what diversification or dissimilar price movement brings to a well-designed portfolio.

There’s no questioning in the arena of investments and financial planning that the use of “Modern Portfolio Theory”, which was fathered by Harry Markowitz, is scientifically sound and predominately practiced in finance. What we find when analyzing portfolios is a reasonable amount of different holdings, but a lot of stuff does not equal true diversification. The unintended consequences of an investors’ attempt to diversify, is most often just a lot of redundancy of the same companies held in different areas of their portfolio. Example: Is it good to own Apple in 10 separate funds? The result is a diminished market return because of the lack of true diversification.


About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry