Helping Investors Protect Their Rights

What is an overconcentration of funds?

On Behalf of | Sep 3, 2021 | Broker Misconduct |

As someone who is investing, you want to make sure that your investments are solid. You want to know that your hard-earned money is going to grow and that it has an excellent opportunity to help you get to where you want to be financially.

Usually, your investment broker will be cautious and invest across multiple companies. Why? By investing across different stocks, for example, they will be able to reduce your overall risk and increase the likelihood that you will increase your wealth over time.

Overconcentrating your funds is detrimental to your goals

Overconcentrating your funds can hurt you very quickly. While there are times when you may want to put much of your money into one stock or investment, doing this is extremely high risk. Your financial advisor and broker should be aware that doing this could result in substantial losses.

In fact, when you invest only in one industry or even a single company, you have an increased risk of losing much of your portfolio’s earnings, if not all of your original investment. If your broker or advisor overconcentrated your funds, then you could have a case against them.

How do you know if you have a case for the overconcentration of your investments?

Diversification is one of the keys to being successful in the stock market. If your advisor recommended that you purchase only a small number of investments, which left you concentrated in too few investments or industries, then your advisor may have breached one or more duties owed to you, including the duty to recommend suitable investments.  Concentrated investments are not generally suitable investments. If they failed to disclose important information to you about a trade or investment, or if a broker fails to diversify your stocks the way that they should have, then you may be able to make a claim against them for the unnecessary investment losses.

If you have lost a substantial amount of money because of financial mismanagement by a broker or financial advisor who you worked with on your portfolio, it may be a good idea to look into your legal options to recover those funds. You may have a case and could be in a position to make a claim against them.