Mitigating Risk Through Portfolio Diversification
Client Background
A client in their 60s, a non-executive employee of a company, held a concentrated stock position in their employer’s shares. They approached us to review their retirement portfolio.
Challenge
The client’s portfolio was heavily concentrated in one stock, which had multiplied in value, fueling their belief in the company’s future. However, this concentration posed significant risk, especially as they neared retirement, as a single company’s failure could devastate both their job and investments.
Solution
We advised diversifying their portfolio to reduce risk, emphasizing that even strong companies can face unexpected challenges. We recommended gradually selling portions of the concentrated stock and reinvesting into a diversified mix of assets aligned with their retirement goals. Unfortunately, the client chose not to follow this advice.
Results
The company faced an accounting scandal and went bankrupt, rendering the client’s stock worthless. They lost both a significant portion of their retirement savings and their job, severely impacting their retirement plans. Had they diversified, their nest egg would have been preserved despite the job loss. This underscored the importance of diversification, regardless of confidence in a single company.
Is your portfolio exposed to unnecessary risk? Contact Michael Brady for a personalized consultation to discuss how your wealth can align with purpose and possibility.