savings

5 money myths that are financial nonsense

No. 5: Invest in what you know
Myth No. 5: You need to diversify © Ryan R Fox/Shutterstock.com

No. 5: Invest in what you know

It's always a good idea to understand the basics of what you're investing in, but putting too big a chunk of your portfolio into something you're familiar with can be risky and, ultimately, self-defeating.

Antenucci says it's not unusual for clients to want to put their money in the industry they work in. The thinking seems sound: "I spend every day in this industry, I know it's doing great and I expect that to continue, so let's put my money there."

But the reality can be quite different.

"We have seen clients in certain industries like health care have a portfolio full of health care stocks," Antenucci says. "They become enchanted with these companies because they're familiar with them. These clients end up with a portfolio with greater risk level than having a diversified portfolio of stocks and bonds from a variety of different sectors and countries."

The lack of diversification can make it tougher to ride out an industry downturn.

"If your job is in health care and the health care industry is under pressure in general, then there's additional risk that your investment portfolio can also be going down at a time where you may lose your job," Antenucci says.

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