Saturday Rant… the Worst Word in Finance

The most abused word in finance is “Diversification.”

Wall Street knows this.

And the Boyz – guys like Jim Cramer – take advantage of the small investor by telling you to be diversified.

Ironically (or NOT) they very conveniently offer you multiple ways to diversify with fancy ETFs and mutual funds.

But what they won’t tell you is how you’ll likely end up being over diversified.

As a result, you end up underperforming the market most of the time.

With that in mind, we’re turning over today’s rant to a newsletter subscriber who goes by the handle “Portfolio Armor.”

So, take it away PA…

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When I think about diversification it reminds me of a story my doctor once told me that the reason people get fat is because they eat more than their body needs.

It makes perfect sense when you think about it.

His advice to patients was simple.

Doctor:  “When you’re craving that bag of chips or chocolate cake, instead of eating them, drink a bottle of water.  And if the craving comes back…drink another bottle of water.”

And this got me thinking about how most investors get fat by over indulging when buying stocks.

Huh?

Getting Fat/Diversified Buying Stocks

So, because Wall Street pushes diversification, investors can’t figure out how to curb their appetite when it comes to diversifying…especially in the case of buying mutual funds and ETF’s.

Example: most 401k offers soooo many choices.

And they’re told that by spreading their money around you become well diversified.

WRONG!

Worst Word in Finance

To illustrate this point, 2023 has proven that ‘diversification’ – according to Wall Street standards – has been a nightmare.

Simply stated ‘diversification’ is the most abused word in the financial industry.

As a result, most investors totally miss the fact that they’re duplicating their efforts via their brokers “diversifying” methods.

Why?

Because most of the funds/ETFs they’re in are all buying the same stocks.

So much for diversification.

The other big excuse for eating too many ETFs/mutual funds is that their “financial advisor” tells them it’s a good idea.

That’s kinda like a fat person telling you it’s okay to indulge yourself with cookies.

I still prefer the idea of owning individual stocks.

THEY have definitely outperformed the markets this year.

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Thanks, PA.

We happen to hate most ETF’s for the same reasons you listed as a way to ‘diversify.’

And as always, if you – our Dear Readers – have a rant you’d like to share then please send it to us.

You never know whose life will be affected by it.

And if you want to see some NSFW rants then go (HERE).

Also, learn how to avoid getting “size challenged” and losing money when the markets rip your face off by reading our November newsletter (HERE).

It’s easier than going on a diet.

And it’s a lot healthier for your portfolio.

Share this with a friend…even if they’re skinny.

They’ll thank YOU later.

And tell them:

We’re Not Just About Finance

But we use finance to give you hope.

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