Buy, Hold, and Sell!

Chapter 13Buy-Hold Myth #4: Diversify Your Portfolio…That's All You Need to Do

One evening after coming home from work, Rob fell over the ottoman, righted himself, and looked up to see his wife Laura crying. “Don't worry, honey, I didn't hurt myself. You know I always trip over that darn thing, and I'm always okay.”

“That's not why I'm crying.”

“Do you want to tell me why?”

Laura sniffled. “You'll be mad at me.”

“No, I won't.”

“Oh, Rob, I've been a snoopy-nose.”

Rob waited.

“I opened your mail,” said Laura. “The letter from our financial advisor.”

“Oh, honey,” Rob said, giving her a kiss. “That's our mail, not mine. It's okay.”

“No, it's not! We're down a lot of money!” Laura said, bursting into tears again.

“Listen, don't worry. Our portfolio is diversified, so we should be fine. It's probably just a mistake. I'll call Mr. Smith tomorrow and set up an appointment. Okay?”

The next day, Rob and Laura sat in front of their financial advisor.

“Don't worry,” said Mr. Smith, “You're well diversified, and it's worked wonders for you.”

“I'm so relieved,” said Laura. “So we haven't lost any money?”

“The market dropped 50 percent, but your portfolio went down only 30 percent.”

“Thirty percent?!” Rob jumped up out of his chair. “Did you say we lost 30 percent?”

“I don't see why you're so upset,” said Mr. Smith, “I thought you'd be thanking me. As I said, you could have lost 50 percent, but…”

“But we only lost 30 percent?!!” said Rob. “We're paying you a fee to help us lose money and we ...