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Why Diversification Matters

Why Diversification Matters 

By Timothy P. Gelinas CFS®,CAS®, CIS™, CSA


We probably all remember the carnage of 2008, right? That may be all I need to say in order to convince you that diversification matters. But, for the sake of etching this into our minds, I will share a story.

It’s one I have told many times to illustrate the importance of not letting your emotions guide you while investing. Back in 2007, a colleague was helping one of his clients who recently retired from Wachovia. His client had about $1 million in Wachovia stock. My colleague explained to his client the importance of diversification and that he was over-exposed with this much in one position. 

"It's Wachovia" the client said. "It's not going anywhere." 

When the crisis started in 2007, Wachovia stock was priced at $51.32. It had also been priced as high as $59.85 in April of 2006. Well, it began to drop. My colleague called his client and told him he needed to sell and diversify his assets.

"No," said the client. "I'm not going to sell when it is down. It will come back." Wachovia stock continued to plummet.

My colleague called him again and said, "I really think we need to get out and stabilize your account through proper diversification."

"I'm not going to sell it right now,” said the client. “I’m watching it and I want to wait for it to climb back up before I sell it.” 

Well, he never sold it. Wachovia went all the way down to $1.84 on September 29, 2008, [BL1] causing him to lose much of the value of his stock and assets. And, this was just after he retired! I can think of few things more disconcerting than realizing your retirement nest egg has just cracked. 

What was his problem? He fell in love with his holdings. Stocks are an investment. They are a tool — plain and simple. You purchase them to help you grow your assets or provide income based on your needs. They do not give you love or show affection, so treat them with wisdom and not based solely on emotion. Here is the problem, it is virtually impossible to check your emotions at the door when it comes to investing. Rather than trying to do the impossible and leave emotions totally out of the picture, we should use our emotions in combination with wisdom to help make good decisions.  

Let's take a moment and think back on some of the worst decisions you have made in your life. Maybe it was dating that guy or girl. Maybe it was rebelling against your parents. Maybe it was buying that car, or taking that job, or bursting out in anger at someone you care about. Think back on your bad decisions. I would be willing to bet almost all of them were emotionally based. Am I right? It's human nature. Of course, our emotions have led to a ton of great outcomes too. So, it’s important to not totally disregard our emotions. Rather, let's use our emotions to develop an investment plan that matches what we want to accomplish. If done correctly, when the market is in the middle of a scary plunge or is on a positive run like we have never seen, we can have confidence rather than fear with every news article or TV segment. 

"How do you accomplish this?" you might ask. 

Well, herein lies the trick. You need to own different stuff! Do you know whether stocks are going to outperform bonds over the next year? Are large companies going to outperform small ones? How about international companies? Will they outperform domestic? Nobody knows! I don't care who they are or what television show they are on, they don't know. They may have a decent idea but they can't be 100% sure. For this very reason we diversify. You should own positions that can move independently from other categories. We call them "non-correlated asset classes.” In other words, stuff that moves in different directions. Or, putting it as one of my colleagues stated it, when one zigs, the other zags.

Now enters emotion. Your mix of positions is based on your risk tolerance or comfort level. If you get overly stressed and lose sleep when the market has a big drop, that will let you and your advisor know you might need to be a little more conservative. 

This is NOT timing the market. This is designing a plan ahead of time that takes into account different market fluctuations. Your plan will be determined by your risk profile.

Your risk profile is typically determined through answering a few questions. These allocations are put to the test through real life experiences. It is important to answer the questions honestly. A good, independent advisor will also help determine what a prudent plan is based on your risk tolerance. No matter how conservative or aggressive you want to be, it is important to have different positions. If done correctly, proper diversification can increase your performance while most importantly reducing your risk.

If you enjoy doing all your own investing I encourage you to put a solid, well balanced plan together that incorporates multiple asset classes. If investing is somewhat intimidating, I encourage you to find a good, independent adviser who will listen to your concerns and will spend the time to create a well-thought-out plan. Your future will thank you!


Timothy P. Gelinas is President of Senior Financial Planning, LLC and is a nationally recognized financial advisor. Since 1998, he has specialized in helping retirees preserve and protect what they have worked for all their lives. Tim enjoys teaching classes and leading workshops that educate retirees on various valuable topics. He is happily married to his wife Rachael of 23 years.

Securities and advisory services offered through The Leaders Group, Inc., securities broker-dealer, Member of FINRA/SIPC. TLG Advisors, Inc. is a Registered Investment Advisor, 26 West Dry Creek Circle, Suite 800, Littleton, CO 80120, (303) 797-9080. Insurance and annuities offered through Timothy P. Gelinas, GA insurance license #533762.



This award was issued on 9/1/23 by Five Star Professional (FSP) for the time period 11/14/22 through 5/31/23. Fee paid for use of marketing materials. Self-completed questionnaire was used for rating. This rating is not related to the quality of the investment advice and based solely on the disclosed criteria. 3,209 Atlanta-area wealth managers were considered for the award; 237 (7% of candidates) were named 2023 Five Star Wealth Managers. The following prior year statistics use this format: YEAR: # Considered, # Winners, % of candidates, Issued Date, Research Period. 2022: 3285, 263, 8%, 9/1/22, 12/13/21 - 6/10/22; 2021: 3254, 265, 8%, 9/1/21, 11/30/20 - 6/25/21; 2020: 3314, 268, 8%, 9/1/20, 12/23/19 - 7/10/20; 2019: 3197, 285, 9%, 9/1/19, 12/10/18 - 7/23/19; 2018: 3248, 287, 9%, 9/1/18, 12/29/17 - 7/24/18; 2017: 2378, 301, 13%, 9/1/17, 12/30/16 - 7/14/17; 2016: 2210, 526, 24%, 8/1/16, 2/4/16 - 7/22/16; 2015: 3620, 546, 15%, 9/1/15, 2/4/15 - 7/22/15; 2014: 4433, 560, 13%, 9/1/14, 2/4/14 - 7/22/14; 2013: 2852, 592, 21%, 9/1/13, 2/4/13 - 7/22/13; 2012: 2660, 607, 23%, 9/1/12, 2/4/12 - 7/22/12.
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Securities & Advisory Services offered through The Leaders Group, Inc., Securities Broker/Dealer, Member FINRA/SIPC, TLG Advisors, Inc., a Registered Investment Advisor, 26 West Dry Creek Circle, Suite 800, Littleton, CO 80120, 303-797-9080

Senior Financial Planning is not affiliated with The Leaders Group, Inc.

*Winners appearing on this page do not pay a fee to be considered or to win the Five Star Award. Professionals with a digital profile have paid a promotional fee.
Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers. The award is based on 10 objective criteria. Eligibility criteria-required: 1. Credentialed as a registered investment adviser (RIA) or a registered investment adviser representative; 2. Actively licensed as a RIA or as a principal of a registered investment adviser firm for a minimum of 5 years; 3. Favorable regulatory and complaint history review (As defined by FSP, the wealth manager has not; A. Been subject to a regulatory action that resulted in a license being suspended or revoked, or payment of a fine; B. Had more than a total of three settled or pending complaints filed against them and/or a total of five settled, pending, dismissed or denied complaints with any regulatory authority or FSP's consumer complaint process. Unfavorable feedback may have been discovered through a check of complaints registered with a regulatory authority or complaints registered through FSP's consumer complaint process; feedback may not be representative of any one client's experience; C. Individually contributed to a financial settlement of a customer complaint; D. Filed for personal bankruptcy within the past 11 years; E. Been terminated from a financial services firm within the past 11 years; F. Been convicted of a felony); 4. Fulfilled their firm review based on internal standards; 5. Accepting new clients. Evaluation criteria-considered: 6. One-year client retention rate; 7. Five-year client retention rate; 8. Non-institutional discretionary and/or non-discretionary client assets administered; 9. Number of client households served; 10. Education and professional designations. FSP does not evaluate quality of services provided to clients. The award is not indicative of the wealth manager's future performance . Wealth Managers may or may not use discretion in their practice and therefore may not manage their clients' assets. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by FSP or this publication. Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by FSP in the future. Visit