During the past 20 years, investors have been exposed to the tech bubble, the likes of Bernard Madoff and Allen Stanford, the financial liquidity crisis of the late 2000s, and other unsettling events. More recently, we have heard much about the fiscal cliff and the hypothetical financial scenarios related to the news of the day from Washington.

It's no wonder that even the savviest investors sometimes feel uncertain about what to do next. And it's natural that investors might ask whether they are properly diversified and protected so that their investments can weather the next great storm.

But diversification is more complex than just spreading out investments, like throwing many pebbles into the air. The term can apply both to relationships with financial professionals and to investment strategies.

Let's begin with the relationship idea.

Many investors believe that one easy way to lower risk is by using multiple financial consultants, essentially placing their financial eggs in more than one basket. On the surface, the premise might make sense. If we have multiple strategies that are monitored separately and bring to light multiple recommendations, we reasonably might believe that we have greater protection within those varying strategies that will better cushion us against a major market event.

However, this belief creates a false sense of security. It compromises the responsibility of managing the relationship. Investors who use this approach inadvertently define themselves as the only ones who can understand or manage the entire financial picture. You, as an investor, stand to lose efficiencies, in both time and cost, that working with one financial consultant often enables.

The theory of multiple financial consultants removes an important component: trust. That trust is found in relationships that work best. Its absence leaves an investor without any single, reliable source of information and removes the financial consultant from the role as an informed sounding board. It makes it impossible for a financial consultant to understand your complete financial picture and the level of risk that's appropriate for your situation.

That understanding is what helps a professional provide recommendations that realistically reflect your situation and address your goals as they change over time. And unless you live in a vacuum and never age, marry, have children, move, earn or inherit money, operate a business or retire, your financial situation will change.

Picture sitting down at year-end with three statements on the table. Whether we like to admit it, we understand from studies on human nature that the investor's tendency will be to focus on the bottom line—in this case, portfolio performance attributed to each financial consultant relationship. Those performance reviews are likely to draw comparisons. And again, human nature means that the majority of investors will focus on the relationship that performed the worst.

As a result, the investor has become performance focused. If a financial consultant knows he or she is being compared to other professionals, that consultant might tend to increase the strategy risk level to outperform competitors. In both scenarios, the investor and the professional might be tempted to abandon earlier plans and change course, taking more risk than might be prudent.

Further muddying the issue is the potential for conflict and confusion. How does each financial consultant know that, when they recommend a strategy modification, the change isn't conflicting with a strategy from another financial consultant? Or whether it's duplicating an approach already in the mix?

An investor seeks a relationship with a financial consultant to gain concrete guidance tailored to the investor's specific situation, whether the investor is a business owner who oversees employee benefits or an individual with personal goals at stake. Either way, key understandings can get lost without clear communication.

Another element for investors to consider is the role of investment strategies in diversification and security. During the past few decades, investors have been introduced to a multitude of investment vehicles that include mutual funds, exchanged-traded funds (ETFs), separately managed accounts (SMAs), and other vehicles, including hedge funds for those who qualify. For most, these relatively new investment vehicles have done nothing but create confusion when investing retirement assets and life savings. Further, because of the relative complexity of some of these vehicles, they have created an out-of-sight, out-of-mind mentality. Investors really haven't always understood what they're getting into. That is a problem that hurt many portfolios through the 2008 market sell-off.

The primary objective for investing in one of the vehicles above is to gain diversification and professional money management at a relatively efficient cost. The idea of diversification is obviously a good one. By diversifying, an investor tries to lower risk by combining multiple investment strategies and accessing various sectors of the economy. US News reported last October that the S&P Composite 1500 had outperformed 90 percent of stock funds over the prior year.

If mutual funds and the other professionally managed products are providing diversification, then the next question that arises is how are the majority of those stock funds not beating one of the core stock market benchmarks in the United States? This is where a cost component comes into play. Please note: Most investment vehicles have hidden costs that can draw down performance numbers and make that investment strategy less efficient than expected.

Additionally, if a person invests in an array of mutual funds, is he or she really working with a diversified portfolio? Consider this: One mutual fund may include stocks in casinos, tobacco companies, and other industries that you are less than enamored with. Or three of the mutual funds in any portfolio may be heavily weighted in the tech, housing, and banking sectors. Do you know? Are those the sectors where you wanted most investments just before the tech bubble burst or during the housing and financial services meltdown?

Ultimately, investors might want to consider taking a step back, looking at their strategies and asking themselves if they really understand their portfolios. Investors need to focus on their goals and build a portfolio specific to those objectives.

The most simplified method, with the greatest transparency, is to invest directly in individual equities and bonds. For many investors, this can bring the comfort of "knowing what you own." It also can increase an investor's dividend and interest streams, allow an investor to effectively manage a portfolio tax situation, and lower overall expenses to gain diversification. Investors then can focus less on comparing themselves to a variety of benchmarks and work directly with their financial consultant to make sure their own specific objectives are within reach.

Investors obviously can invest in any way they choose and with whomever they choose. In doing so, it's important for investors to know what they are getting. Are your investments actually diversified? Or are they just spread among so many financial services firms, mutual funds, and other investment vehicles that you really aren't sure what you have?

It may be time to simplify your life, and to help your financial consultant to do his or her best work for you, by narrowing the field.