“We recommend investing 50% of your life savings in Google stock.”
I deliberately pause as I watch them squirm.
I keep silent until they reply, which is usually something like:
“Ummm. I mean I know you’re the investment expert and we’re just civilians, but that seems kind of risky, no?”
To which I answer “Yes. It’s extremely risky. And if I was serious, you should run very fast in the other direction because I’d be the worst financial planner on the planet.”
“So what gives? Why did you say that if you’re not serious?”
“Because you currently have half of your life savings in your company stock, but don’t think twice about it because you already own it. But if you had all of that in cash, you would never think of putting it all into one stock.”
Diversifying company stock is the #1 recommendation we give that people DON’T follow.
I use that set up to try to reframe their perspective and shake them loose of their anchoring bias.
Anchoring bias is when you attach greater value to something you already own.
Outside of betting too much on crypto, a concentrated stock position is the biggest risk to any investor’s portfolio.
Unfortunately, it’s also extremely common and very difficult to let go of.
