Do you think too much of a brand share? Why it could hurt their assets

Investing in a company that you believe that it is a wage can be endangered too much of your portfolio into the shares of a single brand into the financial future. Market dwelling, corporate scandals or industry shifts can quickly undermine your assets if you are only overexposed.

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Diversification is the key to the protection of your investments and the long-term net assets hier, why keeping too much of a stock could be a costly mistake.

First of all, it is helpful to understand when and why you may keep too much of a brand share, says Clay Cooper, WEATTH Management Advisor at Northwestern Mutual.

“Usually they are busy in the company and therefore have a kind of stock options through work and have worked there for a long time and worked the company carried out or they met a Homerun,” he said. He referred to companies like Tesla or Nvidia, in which people got stocks 10 or 20 years ago.

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“So if you have a large, concentrated position, there is a lot of emotions behind this position because there is good to do for you and feel good; or you work there and you obviously have that your company cuts off well.”

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For those who have not earned any stocks through employment, it is important to ensure that an investment portfolio is well diversified, said Cooper. “There is a famous quote – 'if you can make you rich, it can also make you poor.”

As an example, he pointed out that many large branded shares that no longer seemed to be on safe bets years ago are no longer a candidate. “The market we know is constantly innovative and rewarded those companies that develop new ideas.

If your portfolio is already well diversified, you may be able to be “a little more concentrated” in an inventory that feels very good.

The problem is that even the best known brands are not against market volatility and numerous risks.

“It is not only whether the business does not work, there are state risks, there are regulatory risks, there is a geographical risk,” warned Cooper. “Maybe your CEO will become unpopular. There are only many different risks that are difficult to include in any investment thesis.”

In addition, even the ten best brand shares with the highest performance are today, which include companies such as Tesla, Google, Nvidia, Microsoft, etc. “Zero of them were among the top 10 in 1990, one of them was in 2000 and only three of them were in 2010,” he added. “So innovation is very annoying.”

If you want to use a rule of thumb, Cooper suggested that you never invest more than 5% to 10% of your portfolio in individual brand shares.

To help his customers, to think clearly about it, he often asks you to think about whether you would convert your shares into pure money, how much would that be and would you invest this cash in the same stock again?

Suppose they had a 1 million dollar. “Mostly, not always, but the answer is not all million, it could be that I would put another 50 or hundred thousand in it and then diversify the rest of the portfolio. Most people understand and actually with logic you will come up with a reasonable solution, but sometimes you feel in this position in this position in which you are because of emotions.”

Another important consideration is taxes, said Cooper. “A big, big mistake I see is that you let the tax tail wag with the investment dog. So you make tax decisions for investment decisions.”

He shared a case of customers who did not want to sell their shares in two large, listed companies because they did not want to pay capital gains taxes.

Cooper continued: “The back is 20/20. Both companies have declined about 50% compared to their highs, and the capital gains would have been much cheaper than the market in relation to losses.”

It is important to remember that investing is a process in the long run.

While you can be lucky to have a lot of individual brand stocks, he pointed out that “diversification is really about creating and ensuring that you bring financial stability to the table. This is certainly not as much fun at a cocktail party to talk about how you have a diversified portfolio, as it chooses about the couples you choose.”

It is ideal to advise yourself with a financial advisor about these topics, but at least research to ensure that you diversify your portfolio.

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