Is Your Investment Portfolio a One Man Team?

What would happen to your portfolio if your star player was injured?

For some teams the loss of a super star may mean the end of winning season. Just think about how you feel when your team’s all star player doesn’t get up after a nasty collision. You and the rest of the fans hold their breath, knowing the future of the season lies teetering in the balance.

Coaching Your Investment Team
There is not much you can do about the fate of your favorite team and players but luckily you are the coach of your own investment team, your investment portfolio.

Too often our portfolio is built around a few holdings that are outperforming everything else. We know we should diversify but how can you bench international stocks when they’re delivering insane returns?

Depth on the Bench
In the long run a diversified portfolio will win out. We know the tide will turn. Every player will get injured or have an off tournament sooner or later. Every investment will take a turn for the worst at some point.

When your top performer can’t do anything right, what do you want the rest of your team to look like? Do you want 75% of your portfolio sunk into an investment that is consistently throwing up air balls or interceptions? If your financial future is dependent on your investment team winning the national title wouldn’t you rather have the talent spread around than concentrated on one investment?

Conference Champs or National Title?
Obviously, as the coach, it’s your call to make. In the game of risk/reward balance the superstar approach might offer more reward if they’re on fire. But the risk is higher as well. If that player goes down, the fans may turn on you and it can get ugly fast. Some teams have done it with a superstar but statistically you’re much better off choosing a diversified portfolio.

Here’s a question to consider. Which would you rather have your portfolio do, win the national championship once in 35 years or consistently make it to the NCAA tournament every other year?

I know, the temptation to swing for the fences is enormous. But remember, in sports results are measured a season at a time. With investing, results should be measured over the long term. Unlike sports, your investment’s performance carry over from year to year.

So let me ask you, what looks better on the trophy wall of investing, a national title from 30 years ago or conference champs 6 out of the last 10 years?

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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