What Financial Advisors Fail to Tell You
What Financial Advisors Fail to Tell You by Robert Kiyosaki – Daily Reckoning
If you remember, in 2011, Berkshire Hathaway invested $5 billion in preferred shares of Bank of America, which was struggling at the time with numerous legal issues in the wake of the subprime mortgage crisis.
He’s done it again.
It was revealed that Warren Buffett’s Berkshire Hathaway invested billions of dollars in bank stocks during the third quarter, including a $4 billion position in JPMorgan Chase.
It’s likely that we will never know the specifics as to why Buffett decided to invest in JPMorgan Chase and I’m even more certain he’ll leave them out of his annual letter to his company. But it is now known that he owns stakes in a total of 10 banks with a combined market value of more than $85 billion.
You might be wondering why Buffett added another bank to his portfolio? I point you to his quote for the answer: “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Many financial advisors recommend that you diversify for your own protection. What they fail to tell you is that it is also for their protection. Since most financial advisors cannot tell you exactly which stock or mutual fund is a great investment, they tell you to buy a bunch of them.
Instead of diversifying, my rich dad taught me to focus on finding the best investments. That meant sifting through hundreds of offers, studying, analyzing, and determining the pros and cons of each.
Learning to focus was one of the best real-world business lessons I received from my rich dad. It helped me become a better entrepreneur and investor. Focusing on investments also allows me to make more money with less risk, because I’m not buying a bunch of sub-par assets and praying they will do something.
Two Factors That Justify Diversification
So why do financial advisors recommend diversification when the world’s greatest investor chooses not to diversipfy? I believe there are two answers to this question.