I spoke with a financial adviser (FA) type today. I've been one of those guys before, series 7 and 66 SEC licenses, life and disability insurance sales licenses, etc. I didn't stay in it long though since I got in right as the markets began melting down in 2001 and early 2002 and since I come from a family that has jack for connections (most people I know who have done well in that industry had wealthy family members who would do business with them just because they were related).
We were talking about the Simple IRA plan my employer provides, which right now is in a rather expensive fund family. This FA was talking about having us move to a different one under American Funds, which would cut the fund fees we're all paying down to around 10% of what we're charged now. Can't argue with that!
But like any FA, he got around to asking me about my stuff. I told him about my Forex dealings, and true to FA fishing form, he asked me if "I have a Roth." I don't. Then he started telling me a horror story about some options trader who got scalped recently when in the past he laughed at the returns of the FA's clients. Basically, he was trying to tell me that I need to diversify or I'll get hosed.
Diversification was the mantra when I was an FA, too. Split people up amongst a bunch of different investments and they'll not lose a bunch if any one of them tanks. That's a good idea for avoiding a big loss, but I think it's also a good way to avoid a big gain.
That's why I shrug off the conventional wisdom and stick with what I'm doing. I know that I could take a big hit by being in Forex, maybe more so since I only deal with one currency pair at a time. But I don't do this stuff willy-nilly and and I have specific entry and exit criteria. It has worked and it continues to work.
Eventually, I will diversify. As I've blogged about before, I eventually plan to shift my new capital toward building a portfolio of municipal bonds so that I can eventually tell the IRS to stick it where the tax return can't be read. The thing I've always doubted about the whole diversification shtick though is that it sounds great... for people who already have a pile of money.
If you concentrate your investments, you can win big or lose big. If you diversify properly, you pretty much can achieve a certain "average" positive return every year. And that would be good if your average percentage return translates into a big pile of money, having been generated from an even bigger pile, but otherwise you're probably looking at working most of your life to get the pile in the first place (and then some commie Democrat will make sure your heirs lose it all to a death tax). That's where I'm at. I need to make that mountain of capital, then I'll look at 8% average annual returns and say, "oh, goodie!"
I think some arguments could be made that me being all in with Forex (other than my employer sponsored retirement stuff) is sort of immune to the whole "diversify!" conventional wisdom. But like any argument, someone else can make another, regardless of particular facts, so I usually choose to just shrug and drop the conversation. I don't feel like arguing religion with anyone, whatever sort it might be. I'll let the results speak for themselves, and I'll decide what the time frame is to measure them within. This is a race I'm truly only running with myself, after all.
So, yeah. I think the company I work for should go with what this guy has to offer for our retirement stuff, but as to my own affairs, not so much. Just keep in mind that people who recommend diversification typically do so because they don't know a whole lot, or because they're required to (FA's).
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