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Correcting the experts on the Madoff scandal
Prepositions matter. There's a difference between investing all your assets in something, and investing with someone.
For decades, investing guides and gurus have preached about diversification: don't put all your eggs in one basket.
Diversification means, don't invest all your assets in the same thing (stock, bond, or asset class). But it really doesn't say anything about who those assets are with - i.e. how many different brokerages you have.
Who would want to manage multiple brokerage accounts with Schwab, eTrade, Ameritrade, keeping asset mixes balanced across all three of them? That's not what diversification means.
But as the Madoff scandal broke, several "expert" financial commentators asked about the victims, Why didn't they diversify?
Clearly the portfolios were diversified - these were savvy investors who watched their statements carefully. Their assets were in the right assets, at least on paper; the problem was that they were with the wrong guy.
Here's hoping that someone in the MSP will clear up this distinction for those expert commentators.
I do have multiple brokerage accounts with different places. Call me crazy.
I've been saying the same exact thing, incredulous that these experts are making people think it's wrong to diversify accounts within one brokerage firm!
Not arguing with you here, just curious. I've been trying to pay as much attention to the whole Madoff thing as possible, but haven't heard any financial experts make such diversification claims. Where did you see them?
It's doubtful that the media will pick up on it, unless Dan Quayle steps in and misspells something instead of just using poor grammar.
I wish I had kept a couple of pointers. I can't think of a specific one now, but remember seeing/hearing/reading several people tsk-tsk the "non-diversification" strategy.