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Using the "X-Ray" portfolio-screening tool from investment-research firm Morningstar Inc.'s Principia database, MarketWatch analyzed Roberts' stocks and funds, and a combination of the top 50 holdings.[/align]
Several financial advisers were then asked about the results. They didn't know at first who they were judging, only that the subject was a 50-year-old father of two, with a house in an upper-class suburb and a professional career.
Their unanimous verdict: Roberts is overly concentrated in specific stocks, owns too many mutual funds and hasn't spread his wealth across different investment categories.
Plus, he has a lot of idle cash, no bonds and little international exposure.
"It's a very unbalanced portfolio," said Kevin Ellman of Wealth Preservation Solutions in Ridgewood, N.J. "It's a typical thing where people put together a high number of investments and they confuse that with diversification."
Diversification depends on securities moving in separate orbits, so that when one asset class stumbles, others offset the decline.
In contrast, a "more of the same" approach leaves investors with a lopsided interest in a single stock-market sector or funds with overlapping investment styles. People also neglect income-producing bonds, international stocks and alternative assets such as energy and real estate that can temper volatility.
As a result, many investors hold a basket of securities that tend to rise and fall together, exposing them to greater market risk and anxious swings in performance.
Supreme risk
Roberts is no exception to these classic investment mistakes. Consider the evidence:
About $1.1 million -- almost 25% of Roberts' total securities and cash -- was committed to five technology and media stocks: XM Satellite Radio Holdings Inc. (XMSR: news, chart, profile) ; Dell Inc. (DELL: news, chart, profile) ; Time Warner Inc. (TWX: news, chart, profile) ; Microsoft Corp. (MSFT: news, chart, profile) and Texas Instruments Inc. (TXN: news, chart, profile)
In fact, about 80% of his stock portfolio was invested in the tech and media sectors, including stakes in Intel Corp. (INTC: news, chart, profile) , Cisco Systems Inc. (CSCO: news, chart, profile) , Hewlett-Packard Co. (HPQ: news, chart, profile) and Nokia Corp. (NOK: news, chart, profile) .
"The allocation doesn't make a lot of sense," said Roy Diliberto of RTD Financial Advisors in Philadelphia. "I certainly wouldn't have all that money concentrated in five stocks, all of which are very similar in nature and are going to plummet or rise at the same time."
Roberts also held a collection of like-minded funds that drew advisers' criticism. About 6% of his portfolio was in Fidelity Magellan Fund (FMAGX: news, chart, profile) , with 7% in Fidelity Low-Priced Stock Fund (FLPSX: news, chart, profile) , and 3% in the Merrill Lynch S&P 500 Index Fund (MDSRX: news, chart, profile) .
"Fidelity Magellan is basically close to an index fund -- and an expensive index fund," Ellman said. Magellan is also a mediocre performer at best, failing to keep pace with its S&P 500 benchmark average on a one-, three-, five- and 10-year basis.
Cost is also an argument against Merrill's Standard & Poor's 500 fund, Ellman noted. "It wouldn't occur to me to buy a S&P 500 index fund from Merrill Lynch," he said. With so many lower-cost mutual fund and exchange-traded fund alternatives, the Merrill fund's 0.59% annual expense ratio, Ellman said, is "too expensive."
[align=right]
[align=center]
Using the "X-Ray" portfolio-screening tool from investment-research firm Morningstar Inc.'s Principia database, MarketWatch analyzed Roberts' stocks and funds, and a combination of the top 50 holdings.[/align]
Several financial advisers were then asked about the results. They didn't know at first who they were judging, only that the subject was a 50-year-old father of two, with a house in an upper-class suburb and a professional career.
Their unanimous verdict: Roberts is overly concentrated in specific stocks, owns too many mutual funds and hasn't spread his wealth across different investment categories.
Plus, he has a lot of idle cash, no bonds and little international exposure.
"It's a very unbalanced portfolio," said Kevin Ellman of Wealth Preservation Solutions in Ridgewood, N.J. "It's a typical thing where people put together a high number of investments and they confuse that with diversification."
Diversification depends on securities moving in separate orbits, so that when one asset class stumbles, others offset the decline.
In contrast, a "more of the same" approach leaves investors with a lopsided interest in a single stock-market sector or funds with overlapping investment styles. People also neglect income-producing bonds, international stocks and alternative assets such as energy and real estate that can temper volatility.
As a result, many investors hold a basket of securities that tend to rise and fall together, exposing them to greater market risk and anxious swings in performance.
Supreme risk
Roberts is no exception to these classic investment mistakes. Consider the evidence:
About $1.1 million -- almost 25% of Roberts' total securities and cash -- was committed to five technology and media stocks: XM Satellite Radio Holdings Inc. (XMSR: news, chart, profile) ; Dell Inc. (DELL: news, chart, profile) ; Time Warner Inc. (TWX: news, chart, profile) ; Microsoft Corp. (MSFT: news, chart, profile) and Texas Instruments Inc. (TXN: news, chart, profile)
In fact, about 80% of his stock portfolio was invested in the tech and media sectors, including stakes in Intel Corp. (INTC: news, chart, profile) , Cisco Systems Inc. (CSCO: news, chart, profile) , Hewlett-Packard Co. (HPQ: news, chart, profile) and Nokia Corp. (NOK: news, chart, profile) .
"The allocation doesn't make a lot of sense," said Roy Diliberto of RTD Financial Advisors in Philadelphia. "I certainly wouldn't have all that money concentrated in five stocks, all of which are very similar in nature and are going to plummet or rise at the same time."
Roberts also held a collection of like-minded funds that drew advisers' criticism. About 6% of his portfolio was in Fidelity Magellan Fund (FMAGX: news, chart, profile) , with 7% in Fidelity Low-Priced Stock Fund (FLPSX: news, chart, profile) , and 3% in the Merrill Lynch S&P 500 Index Fund (MDSRX: news, chart, profile) .
"Fidelity Magellan is basically close to an index fund -- and an expensive index fund," Ellman said. Magellan is also a mediocre performer at best, failing to keep pace with its S&P 500 benchmark average on a one-, three-, five- and 10-year basis.
Cost is also an argument against Merrill's Standard & Poor's 500 fund, Ellman noted. "It wouldn't occur to me to buy a S&P 500 index fund from Merrill Lynch," he said. With so many lower-cost mutual fund and exchange-traded fund alternatives, the Merrill fund's 0.59% annual expense ratio, Ellman said, is "too expensive."
