Financial Opinion and Insights

Scattered Assets Can Be More Than Risky

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

They can be expensive, too!

What are scattered assets?  Many people have multiple investment accounts, often with multiple brokerages and or mutual fund companies.  There are even those who have multiple institutional managers in separately managed accounts.

And, all this is in the name of diversification.  I just wrote about this in our ezine which you can find on the IFG Insights Archive.  But, here’s an overview:

Problem is, most of these people aren’t diversified at all?  In fact, rather than reducing risk, they may actually be increasing it! 

There are three issues at play – issues many often ignore:

  • Duplication is not diversification.   But, there’s more:  Few people realize that you can’t really diversify-away market risk.  Think about it: If you bought stocks in the ENTIRE stock market, you’d only be replicating market risk, not eliminating it.
  • Mutual funds contain hidden taxes.  Sure, most people know that; but, what they may not know is this:  They don’t own the underlying fund holdings; they are shareholders of the investment company and as such they share in the fund’s capital gains.  If the fund sold a stock they bought ages ago at a low price and now has large unrealized gains; the shareholder will share in ALL of those gains, even if the stock is sold just after the investor bought-in!
  • Tax inefficiency.   This happens when there are multiple managers, even if one of them is the client, in addition, buying securities in his own online account.  The duplication mentioned above can result in some real costs that can far outweigh any perceived savings.  Again, you’ll find a detailed example in this morning’s IFG Insights, which you can find in our archive.

Like Warren Buffet once said, if you think investing is fun, the odds are great you’re doing something very wrong.



IFG BlogJim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors, and retirement and wealth management services for individual investors. IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  IFG also does not provide tax or legal advice.  The reader should seek competent counsel to address those issues.  Content contained herein represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a written plan.  The Independent Financial You can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com, and by subscribing to IFG Insights letters  for  individual investors.  Keep up to date with IFG on Twitter: @JimLorenzen

Written by Jim Lorenzen, CFP®, AIF®

October 9, 2012 at 7:45 am