Diversifying your portfolio

I was reading a story about someone interested in changing investment portfolios. They were thinking about going from using a broker and holding mutual funds to dropping the broker and purchasing blue chip stocks for their portfolio to reduce fees. The advice given was to look at ETFs for lower cost.

Now that sounds like pretty sound advice, but the advisor missed the bigger picture. This person was contemplating changing from a portfoltio that may have some diversification into a portfolio that held one asset class only and no diversification. The danger is that Blue Chips, while generally more sound than other investment types, still hold risk.

As I learned in marketing, all companies have a life cycle.  1. Start up  2. Growth  3. Maturity  4. Death.  I’ll bet you can guess where many or most Blue Chip stocks fall. Thats right, somewhere closer to death.

I think this person should have been also warned about this risk associated with the decision they were contemplating. The bright side is atleast they weren’t considering un-diversifying into something more risky like third world start-ups.