I’ve been catching up on Season 3 of Masterpiece Theater’s Downton Abbey. I know many of us enjoy this TV series because there is always intrigue and plenty of emotion.
Season 3 begins with the fate of Downton Abbey hinging on a letter from a dead man.
Robert Crawley, Earl of Grantham, faces the loss of the Downton Abbey estate because he violated one of Jentner Wealth Management’s Four Cornerstones of Prudent Investing.
Facing financial difficulties during World War 1, Robert Crawley was offered an opportunity to invest in an up-and-coming railroad in Canada. This was sold to him as an excellent investment opportunity with a lot of upside potential and virtually no downside risk.
So what did the Earl do? He concentrated his investments into this one company. When the “can’t lose” railroad investment fell into hard times and the company declared bankruptcy, the future of Downton Abbey became bleak.
Have you noticed that all investment opportunities are described as excellent opportunities? Nobody ever invests in something that they think will fail.
The temptation is to concentrate into attractive investment opportunities to reap the rewards. Rewards there may be, but no matter how tempting, concentrating your investment portfolio into one company or one investment is not worth the risk.
Rule number three of the Four Cornerstones of Prudent Investing: Concentrated portfolios are risky.
No matter how attractive, don’t overcommit. Use broad, global diversification to provide relative, long-term safety in your investment portfolio. In our opinion, to do otherwise is speculation, not investing.
To learn more about diversification and the Four Cornerstones of Prudent Investing, download our white paper here.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.