I have been teaching for years that there are investing myths the financial industry wants you to believe so they can make a larger buck or two.

One of the “myth” conceptions that is talked about all the time but rarely followed is diversification.

Just because you have a lot of “stuff” in your portfolio (bonds, stocks, mutual funds, etc.) does not mean you are properly diversified.

Let me explain…

Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. In fact, most are narrowly diversified only in U.S. companies and nearly ignore all global exposure. They often feel diversified but they are not.

To be diversified means including classes or types of funds in your portfolio that did poorly over the last five or ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’ portfolios.

Proper diversification spreads risk across various asset classes, global exposure, with varying return characteristics or dissimilar price movements.

Simply said: they don’t do the same thing at the same time.

Don’t take my word for it. Take a look and listen from an expert who just recently spoke about true diversification:

Click HERE to Watch and Listen

Advocates of actively managed strategies argue that managers can apply their knowledge and skill to enhance your investment returns.

What does the data say?

Here is an article that is taken from Articlebase.com:

This is one of the most frequent questions we are asked by investors who use Paladin Registry services (PaladinRegistry.com) to find and evaluate financial planners and financial advisors. They want to know how they can determine the quality of financial professionals “before” they select them.

Wall Street companies make this process difficult because a high percentage of their advisors are inexperienced, poorly trained, and have histories of abusing investors to make money. If you had this information, you would not buy what these advisors are selling and that would have a negative impact on Wall Street revenues and profits.

Unfortunately, advisors do not have mandatory disclosure requirements. Wall Street companies spend millions on advertising telling investors they believe in full transparency for advisor backgrounds. Then, they spend millions on lobbyists fighting all forms or potential disclosure. Companies make more money when they do what is best for them versus investors.

Given this background, how do you determine the quality of advisors before you select them? Following are a few tips that will dramatically reduce your risk of selecting a lower quality advisor who omits or misrepresents information to gain control of your assets.

Advisor Characteristics
Be sure to review specific criteria that impact advisor competence and ethics.

• Select advisors who are Registered Investment Advisors or Investment Advisor Representatives because they can provide financial advice and services for fees.
• Do not select advisors who only hold securities licenses: Series 6, Series 7. They are limited to selling investment products for commissions
• No matter what they say, they are not paid to help you achieve your financial goals
• Select advisors who are acknowledged fiduciaries because they are held to the highest ethical standards in the financial services industry.
• Do not select non-fiduciaries because they are sales reps who are held to lower ethical standards
• Select advisors who have clean compliance records at FINRA.org.
• Do not select advisors who have investor, company, or regulatory complaints on their compliance records
• Select advisors who are compensated with fees for their knowledge, advice, and services and are willing to disclose all sources and amounts of their compensation.
• Do not select advisors whose only method of compensation is commissions
• Do not select advisors who refuse to divulge their total compensation from your assets

Read more: http://www.articlesbase.com/personal-finance-articles/how-can-i-determine-the-quality-of-financial-advisors-2569208.html#ixzz0rb2GXNhA
Under Creative Commons License: Attribution

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I have brought you 4 of the investing myths that destroy the potential returns on your portfolio. This one is the silent killer – The Cost of Investing