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Failure to Diversify or Over Concentrate a Portfolio Could be Fraud

Failure to Diversify or Over Concentrate a Portfolio Could be Fraud

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Home Page > Finance > Failure to Diversify or Over Concentrate a Portfolio Could be Fraud

Failure to Diversify or Over Concentrate a Portfolio Could be Fraud

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Posted: May 22, 2008 |Comments: 0
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Failure to diversify a client’s portfolio can be a form of stock fraud. In order to protect a client’s assets, the broker should vary the types of stock purchased. Stock fraud through over concentration strips the client of the protection diversification affords.

The most imperative shield against risk is when investment holdings are diversified. Since some investments rise in value while others fall, diversification smoothes out some of the volatility of the overall return from a portfolio. Diversification may sacrifice some of the upside potential, but should be more than offset by the benefits of lower levels of risk.

Diversification is a strategy for managing a customer portfolio to limit risk. Instead of all the investments being concentrated in one market sector, investments are diversified among a variety of industry sectors and types of security.

Therefore, as it is less likely that all of the major sectors or specific types will be hit with a significant downturn at once the portfolio contains less risk.

It is a broker’s responsibility to advise clients to diversify their portfolio to reduce risk. Proper diversification is the foremost issue in all-efficient investments, especially when individual stocks are purchased.

When an investment portfolio or account is over concentrated in a particular security, type of security, or industry sector, the risk of loss in the account is increased. It is the broker’s obligatory duty to inform a client of risks and actions that attribute to these risks. Over concentration in an account that contains only one individual investment is easy to recognize. Accounts may also be over concentrated if they:

* Contain only common stocks (including mutual funds that invest in common stocks) rather than a mix of common stocks, preferred stocks, and debt instruments (bonds).

* Contain investments that are limited to one particular industry (such as telecommunications) or industry sector (such as health care or finance).

Brokers are obligated to carefully evaluate each client’s investment goals to provide for adequate portfolio diversification and not give up potential returns. If a broker places the vast majority of a client’s total investment holdings in one sector, and this sector declines significantly, the broker may be liable.

All investors are unique, and careful strategies must be employed to properly diversify a client portfolio. Failure to do so can result in negligence and malpractice liability when that portfolio sustains significant losses.

The cause of action for negligence or malpractice is based upon the duty owed by the broker to the customer and the breach of that duty, including the duty to exercise due care in connection with the account. This activity, whether accidental or not may still be considered negligent misrepresentations, especially if finances are lost.

Failing to properly diversify the customer’s account may also be considered negligent management of an account.

In general, reports have shown that:

* Smaller companies typically have higher risk of failure.

* Smaller-company stocks generally experience a greater degree of market volatility.

* Additional risks are also derived from foreign securities investments.

* Emerging markets typically have higher risk because they are underdeveloped markets.

The right level of diversification for a client depends upon a variety of factors, including the individual’s financial position and long and short term financial goals, and how the market is performing. Many portfolios are not properly diversified and therefore an extended risk is being taken.

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LegalView offers additional resources on failure to diversify visit

by Kay Gaensler

Seek the Expertise of Unicon India for Customized Portfolio Management Service

Seek the Expertise of Unicon India for Customized Portfolio Management Service

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Home Page > Business > Business Opportunities > Seek the Expertise of Unicon India for Customized Portfolio Management Service

Seek the Expertise of Unicon India for Customized Portfolio Management Service

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Posted: Jul 09, 2010 |Comments: 0
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The growing complications in the capital markets make the task of an investor all the more difficult nowadays. There are many issues he has to take care of single-handedly, for example conformations with statutory rules, regulations, investment methodologies, outcomes, analysis, etc. There is also a need for a constant tracking mechanism, in order to keep a close watch on the volatile market. So it is high time investors hired an expert who can manage all these vital issues effortlessly.

Established in 2004 by proactive and visionary entrepreneurs, Unicon Investment Solutions can prove to be your ultimate investment guide that you can trust with great amount of confidence. Whether you want effective portfolio management service or investment banking solution, Unicon can exceed your expectations using its world-class proprietary model, state-of-the-art analytical tools and sure-fire methodologies.

Every investor dreams to have a high-performing portfolio. An investment portfolio can be prepared in a variety of ways to accomplish the eventual objective of upholding and generating wealth. Indian financial markets are complicated and multifaceted enough that money can be earned in any kind of investment environment. The foremost challenge in making a profitable investment portfolio is being aware of precisely what to do and when. Here, you can avail the portfolio management service of Unicon who can recommend you on how to distribute your money, taking your financial objectives and risk-taking ability into account.  

The Company offers Discretionary Portfolio Management Schemes like Unicon Optimizer and Unicon Growth for its diversified clients in the form of individuals, corporate bodies, partnership firms, proprietors and NRIs. Already Registered with SEBI to carry out its portfolio management activities under a license, Unicon boasts a team of highly qualified and experienced portfolio managers and equity strategists who have also the support of a group of fundamental, technical and derivative analysts. All these professionals work round the clock using sophisticated tools and models and offer you a custom-made portfolio that includes a thoughtful mix of equity, quazi-equity, money market instruments and derivative products.

Unicon portfolio management service also includes strict risk management, professional fund management, dedicated relationship manager, regular reviews and rebalancing and timely performance reporting. A portfolio manager at Unicon has this to say, “We give equal importance to client servicing and feedback in addition to making a fool-proof investment evaluation strategy. Our elite group of advisors is well-versed and trained on a wide array of wealth products to provide you a satisfying wealth experience.”  

Unicon with more than 900 business offices and 4500 professionals across India is the pioneer in the field of portfolio management service and other investment solutions. Embark on smart investing by visiting http://www.uniconindia.in/.

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jacyspin providing Investment Banking, portfolio management service, online share portfolio

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INVESTING FOR THE FUTURE – Diversify Your Portfolio

INVESTING FOR THE FUTURE – Diversify Your Portfolio

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Home Page > Finance > Personal Finance > INVESTING FOR THE FUTURE – Diversify Your Portfolio

INVESTING FOR THE FUTURE – Diversify Your Portfolio

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Posted: May 10, 2010 |Comments: 0
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No one knows what may happen to change the current Financial scene, but your money has the best chance of growing if you put part of it into a diversified portfolio of stocks or stock mutual funds. Over a 65-year period, from 1926 to 1990, the average annual return on common stocks was 10.1 percent, compared to 3.7 percent for U.S. Treasury bills, 4.5 percent for long-term government bonds, and 5.2 percent for long term corporate bonds. Small-company stocks returned an average of 11 .6 percent. In general, stocks of small companies returned more than those of larger companies, although they involve more risk.If you can’t sleep at night worrying about the ups and downs of the stock market, then choose more predictable and conservative investments, such as municipal bonds or bank CDs.

But remember, over a long period these investments probably won’t keep pace with inflation. And make investments for the long term, not because you expect the market to rise (or fall) over the next year or so.Market values of stocks always rise and fall over time, so don’t panic and sell when the value initially falls. It’s also wiser to choose investment vehicles for their return rather than for tax considerations.

Differences in investment results generally outweigh any tax savings. Furthermore, tax laws change, and you don’t know what the law will be when you decide to cash in your investments. But if two investments appear equal, then tax considerations might tip the balance. It’s important to keep your acquisition expenses possible, and you can do that by buying no load, that is, without a sales charge, mutual funds. Select funds that have no loads, no redemption charges, and low expense charges.Unless you are an expert who can spend 40 hours a week studying investments, don’t try to decide what individual stocks to buy. Stock mutual funds allow you to invest in a diversified portfolio of many stocks, under the management of investment professionals. Be cautious in dealing with stockbrokers and others who get a commission on the investments they sell. They can provide helpful information, but don’t expect them to be completely objective about the investments they recommend or too concerned about possible losses.

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7 Reasons ETFs Have A Place In Your Portfolio

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Home Page > Finance > Investing > 7 Reasons ETFs Have A Place In Your Portfolio

7 Reasons ETFs Have A Place In Your Portfolio

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Posted: Jun 24, 2010 |Comments: 0
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The acceptance of exchange traded funds (ETF’s) expands each year.   There are at least 1,000 ETFs available to trade covering almost any asset class imaginable.  Some of the largest ETFs are offered by ProShares, IShares, and the SPDRs.
7 Reasons ETFs Have A Place In Your Portfolio

There are numerous reasons for their increased popularity.  The biggest attraction may be that ETFs are believed to be less risky than individual equities.  Because ETFs are a collection of underlying securities the business risk of single stock exposure is reduced.  There’s no chance of corporate malfeasance affecting an ETF like it would an individual stock.

Other attractions to ETF investing are:

•    The market can be traded on both the long and short side.  This expands the chance for profits because an investor can gain from a rising or a declining market.

•    Some ETF’s are leveraged.  More aggressive traders like the concept of increased leverage.  There are now ETF’s with not just double the added leverage, but also triple.

•    The capability to trade multiple markets is possible.  Oil, gold, silver are some of the possible commodity ETFs.  World markets are accessible, too – country specific investments like: Brazil, China, Japan, etc.

•    The currency market has many ETFs — there is apt to be an ETF for all major world currencies.

•    Option trading — just as with stocks the same option techniques can be applied to ETFs.

•    Portfolio diversification is simple given the number of asset classes, sectors, countries, and currencies represented by exchange traded funds.

•    ETFs are not only favorites with the investing public, but also with hedge fund managers and day traders.  One of the reasons, besides being great trading vehicles, is that they are useful as hedging vehicles..  Hedging with ETFs can safeguard the profits in a portfolio and it can be accomplished inexpensively.

As with single stocks, technical analysis techniques are suitable to ETFs.  It’s possible to  apply trend following indicators and oscillators.  Charting the price movement is no different than graphing a stock.  The big index ETFs move very smoothly and are great vehicles to trade.  An active investor could make a good living trading only index ETFs.

One caveat – note the volume on each individual exchange traded fund.  Many like the SPY, QQQQ, DUG, and DIG have plenty of volume.  Some of the more obscure, like some sector ETFs are thinly traded and should be avoided.

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I want to set up a counselling practice online and from home.I need guidelines and tips to start up. I do not have a capital investment. am a single mom, so short of funds

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Choosing Mutual Funds for Your Portfolio

Choosing Mutual Funds for Your Portfolio

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Home Page > Finance > Investing > Choosing Mutual Funds for Your Portfolio

Choosing Mutual Funds for Your Portfolio

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Posted: Nov 19, 2010 |Comments: 0
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Choosing mutual fund investments from the thousands of fund offerings available can be daunting. With so many different categories of funds and fund families, it may make sense to work with your financial advisor. Here are some steps experts recommend you consider when selecting investments.

There are a vast number of mutual fund offerings available to choose from and the process can be intimidating even for a seasoned professional. With so many decisions to make along the way and so many factors to evaluate such as which categories of funds or fund families are right for you, it may be sensible to work with your financial advisor to guide you along the way. Here are some basic guidelines to adhere to when selecting investments.

Evaluate Your Investment Objectives
Before you set out to start picking funds, you first need to step back and design a clear picture of your investment objectives and identify the time frame you have to work with. For example, you may plan to start a business in two years, to invest in your children’s education in 10 years, or to fund your retirement in 30 years.

Generally speaking, the longer out your goals are, the more time you have to save and invest your money and the greater your tolerance for risk might be. If you have an investment time frame of 10 years or more, you may want to take on more risk so that you can position yourself to potentially earn more over time by investing more aggressively in stocks with good growth prospects. However, if you know your investment objectives, say purchasing a house, are less than five years away and you will need funds to cover your purchase, you may want to allocate your portfolio with more conservative, income-producing securities such as dividend paying stocks or short-term fixed income securities.

Try to match your goals with the goals of the fund you choose
After you develop and clear understanding of your investment objectives with your financial advisor, the next step is to identify which mutual fund categories and types will most closely match your investment goals, risk tolerance, and time frame. With thousands of mutual funds currently available for investors, there are certainly plenty of options to pick from, whatever your goals are. But don’t be overwhelmed by the endless number of funds and differentiation within those funds that are available in the mutual fund industry, because essentially all the funds can be boiled down to a several large groups. So think about your investment objectives and what you need to fill the void with in order to get you there – is it income? growth? an income-growth combination? – and then match that with the investment objectives of the fund. For instance, stock funds’ objectives typically include “aggressive growth,” “growth,” or ” growth and income” depending on the underlying securities they hold. Furthermore, each of those funds can also be categorized by a risk level such as high risk, average risk, or low risk.

There are a number of resources available to help you boil down your search for mutual fund objectives and risk levels that are aligned with your financial objectives and risk tolerance in an organized and informed way such as Morningstar, Lipper Analytical Services, Standard & Poor’s, and Value Line, along with many other publications. Standard & Poor’s, for example, categorizes stock funds into five major categories from which each fund is then categorized by fund investment style, risk level, performance, and by an overall risk-adjusted rating in relation to other funds in the same category.

Once you have narrowed down yourself to the fund categories that seem appropriate to your investment objectives, you should start looking into the individual funds of each of your categories. Performance over time is an important metric to take a look at first, but certainly should not be the only considerations. Other important factors may include the consistency of the fund manager, the fund’s style, and even the fund’s returns. For instance, do the returns show wild swings from year to year or are they within a certain level over time.

In addition to third-party resources on mutual funds such as Standard & Poor’s, Lipper Analytical Services, personal finance magazines and so on, you may also want to read the material available by the fund company. Most importantly, you will need to carefully look through the mutual fund’s prospectus, which is available free from the fund company. Fund contact information is also available from major financial