Overconcentration of an investment account can be defined as the opposite of diversification. When handling the investment account of a client, a stockbroker should strictly adhere to the principle of “not putting all your eggs in one basket,” that is, never put a substantial percentage of the money in your account into one investment vehicle only. Common sense will show you that if you put most of your money into a few assets, your portfolio risk will increase drastically. Some examples of overconcentration are:
- Purchasing/selling short too much stock of the same company (or of companies in the same industry)
- Investing a substantial part of the money in your account into one mutual fund (or several mutual funds in the same industry)
- Investing a substantial part of the money in your account into high-yield (junk) bonds
Overconcentration of a portfolio, if carried out without the explicit authorization of the investor, constitutes one type of securities fraud. If you think you have been the victim of a stockbroker who overconcentrated your account, you might need an experienced securities arbitration attorney.
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If you are facing a legal dispute related to your investments, it’s in your interest to work with an experienced attorney who can provide you with the advice you need to reach a resolution that reflects your interests. The first step is to meet with a lawyer in person so you can learn more about your legal options.