Clients have investing ideas all the time. Companies that they want to invest in because they know they will do amazing things. We typically allow a client to slice a very small piece of their portfolio to make these investments. We feel it keeps them connected to their portfolio and gives them something specific to track and root for. It’s OK if they are wrong because it’s such a small piece that it will not do any damage to their financial future.
What’s amazing to me is looking backwards many of these “bets” have been right. My clients are genius’s. Seriously.
Unfortunately, only a small handful have actually realized any gains from these investments.
Wait, that doesn’t make sense???
You see, most have sold these positions way before their vision was realized…. They picked the right company, the right industry but they didn’t have the staying power. They didn’t have the stomach to handle their investment go up and down… Even at such small percentage of the pie, the volatility is still too much to handle for most people.
I write this post to ask, are you investing in specific stocks? Does it make up a large part or a small part of your portfolio?
If my clients are investing a tiny bit and can’t handle it, can you? Can you handle it, if your entire portfolio is betting on Netflix, or Facebook? (Both have had 20-40% declines in the last 5 years)
You need to make sure you are doing all the right things before making any of these bets. Building up an emergency reserve, creating an asset allocation portfolio, saving regularly for your retirement are the foundation of your financial plan. Individual stocks are not.
Because even if you bet right, you will most likely never realize any gains….
You heard it here first.
–Jared S. Friedman CFP®
(the inspiration of this post comes from the fact that two companies Couldera and Hortonworks are merging and both up 15% right now. 1 client invested in both of these a year go and subsequently sold 3 months later because they were too® volatile.)
