There has been a lot of talk these days centering on the stock market bubble and the bursting of it. First, let me say my firm, LCM Capital Management, is not and never has been in the prognostication business. If you have read any of our previous Benzinga blogs, you would know that no one within our industry should be either since they are just market guesses, and they are usually wrong.

 Second, I have no idea whether or not we are in a bubble, nor does anyone else. Only in hindsight will we possibly know this. Everyone seems to be asking about this “bubble.” They even asked the CEO of Nvidia (NVDA), Jensen Huang, after their most recent earnings report, if he thought we were in an AI bubble. How should he have answered that?

 What my 37 years in the business does tell me is, the best way to protect your investments and portfolio from a market “burst bubble” is to be properly diversified. And no, I am not suggesting you buy private credit or Bitcoin to accomplish this.

 You might be thinking, I am already diversified, I own X number of mutual funds from different fund families and I also use several brokers/advisors. That’s not enough and hopefully the following real-world example will explain why and why you need to look under the hood of your investments, especially if you own mutual funds. Don’t forget, if you own a Variable annuity, most likely you own mutual funds as well.

 A client of ours recently switched employers and she sent her new 401k plans investment choices to us for review. At first take, I asked if there were any additional pages since the choices were limited at best. I should add this did not surprise myself nor my partner since we continually see 401k plans that have underwhelming fund options and too many target date funds, but I digress. The plan was managed by one of the large insurance providers, in this case, Voya. The plan was not Voya only funds, which is good, but they did use Voya Target Date funds, which is a conflict of interest from our perspective, but I won’t delve into that here. I should add most of these 401k providers include their Target Date Funds which should not be construed as making it right or better. The plan had funds from Vanguard, JP Morgan, American Funds, Fidelity, Dodge & Cox amongst others. So at first glance, it gives the impression that there are plenty of choices available as well as a way for our client to diversify her investments. The problem is, when you look deeper into what these funds hold, you realize that you are anything but diversified.

 The top 10 holdings in some of these funds, according to Morningstar©, represent anywhere from 23% to over 60% of the fund’s assets, talk about concentration and it’s not as though these funds held 20 stocks, they hold 50 – 200+ so why even bother with investing in those? Peeling back the onion even further and looking into what these funds actual are invested into, you find the following: Nvidia (NVDA), Microsoft (MSFT), Meta (META), Apple (AAPL), Alphabet (GOOGL), Broadcom (AVGO), Amazon (AMZN), Eli Lilly (LLY), Netflix (NFLX). The only difference is the percentage that each of these funds hold of these stocks. Full disclosure, my firm owns these stocks for our clients, and so should you. But, like our clients, you should only own them once. Owning them within different mutual funds, at different brokerage firms is not diversification. This is one of just many issues my firm has with mutual funds, which is why we do not buy them for our clients.

 So, if you want to help protect your portfolio when the market does correct, and it will, look inside your mutual funds holdings, make sure you really are diversified and not in name only.

 There is a better way to invest.