Diversify, Diversify

We live in risky times. Banks fail. Governments fail. How to we deal with this?

One way to manage risk is to control it. That is, if you have a business, know your customers, know your suppliers, and know your employees. Continually update your systems and procedures. Then, if disaster strikes, you’ll have a recovery plan in place to minimize the damage.

But sometimes this doesn’t stop an errant oil rig from creating billions of dollars worth of damage. Is there another way?

That way is diversification. By having many small exposures you can minimize the chances that any one of them will create significant harm. But if the exposures are linked to a common factor—like housing prices or government debt—a downturn in that area can affect your whole portfolio. So is there a third way?

Sure. One final approach is to take no risks. Stay in bed, turn off the TV, and have your food tasted. Only that approach isn’t very productive. Not to mention boring.

Risk is part of life. Control it where you can, diversify it where you can’t. And if disaster hits in spite of your efforts, remain calm. Panic may be rational, but it’s never your friend.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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www.chartertrust.com • www.moneybasicsradio.com • www.globalmarketupdate.net
By | 2014-09-05T19:16:30+00:00 May 28th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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