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www.insideHALTON.com · OAKVILLE BEAVER Thursday, October 13, 2011 · 26 We can all learn lesson from European Dexia e can all learn a strong lesson from last weekend's nationalization of Dexia Bank in Europe. The distance to Europe may be large geographically, but the lesson can hit close to home. In 2010 Dexia SA was one of the top twenty European banks in terms of assets. By Monday it was being broken down and sold off in chunks. Within the ebb and flow of good fortunes in business, this is a part of the system. It is not rare or unusual. The question we all need to ask is why you would want to invest your life savings in a single company, when from time to time some just suddenly melt away. The answer is simple; don't. There is too much risk in owning a single company. If you need confirmation, ask around and you can eventually find someone who had their entire investment portfolio in Nortel. They will tell you how real a risk there is in owning a single company. Nortel was our Canadian dream company that had put us on the world map as a global technology leader. The stock went soaring up to well over $100 per share and then shrunk to a value of only pennies. The roller coaster ride of a single company's risk can be seen by following Dexia over the past few years. It was in trouble in during the 2008 financial crisis when many large U.S. banks went under or needed bailouts. Several governments came to the rescue and injected cash into Dexia. All seemed well and last year Dexia made a profit. Three months ago it easily passed its financial health test. Last week, shareholders saw 42% of the bank's stock value disappear. Greece's economic woes just claimed its first major victim. According to the Globe and Mail l as of the end of June, Dexia had assets as large as the entire Greek banking system. Dexia joins a long list of excellent companies that failed. The list will continue to grow over time. You have to ensure that this single company risk does not lead you to a financial downfall. Our recommendation is to not invest in a single company or a small selection of single companies. W Dollars & Sense By Peter Watson You need to diversify away that single company risk. Effectively, buy the market. How you should do this is by means of a conversation with your investment advisor. There are several options depending on your portfolio size. You will likely need to have some exposure to equities in order to keep up with inflation. They are volatile; however, they provide the opportunity for significant gains over time. When you own the market you will not have the benefit of that skyrocketing single stock that your neighbours brag about. Fortunately though, you will never have that once in a lifetime disastrous stock that your neighbours never speak about. Most Canadians want reasonable returns. They do not want to take a large investment risk. The solution is to spread the risk and diversify. Dexia was broken up because they had too large a single exposure to a specific risk. They had too much Greek debt. Now investors and potentially Dexia staff, who have too much exposure in that one stock, will have lost a significant amount of their wealth. The fact that some companies fail is well known. Unfortunately you do not know which company is about to fail, and you do not know when. Eliminate this type of risk from your portfolio. Develop a risk reduction strategy, which allows you to participate in the potential long-term growth of the market. Eliminate the single stock risk. Convert your individual stock risk to market risk. It is an excellent investment strategy and will help you better manage your investment risk. -- Submitted by Peter Watson, MBA, CFP, R.F.P., CIM, FCSI. Salvation Army winter clothing drive on now through Nov. 18 As the mercury drops, the Salvation Army of Oakville wants your winter clothing to help keep people warm. The local charity is hosting a winter clothing drive and is asking people for gently-used winter wear to its location at 355 Kerr St. Clothing can be dropped off until Nov. 18. The organization is looking for such items as coats, mittens, snow pants and more.