Managing The Money Wars

If you have ever sat down with an investment advisor or a financial planner, diversification has or should have come up in the conversation.  Most people realize the need and power for diversification.  It brings us back to the old saying “don’t put all of your eggs in one basket”.

I think that sometimes we miss the boat when it comes to true diversification.  Nora and I visited our investment advisor several months ago and we got into the unavoidable discussion of diversification.  He wanted us to diversify into several different mutual funds so that we were in international funds as well as various levels of domestic funds.  He has served us very well over the years for our market investments however, the point that I made to him was that we are not truly diversifying by JUST choosing which mutual funds we wanted to move into.

The problem is that all of these investments are still paper investments.  This is not true diversification.  True diversification should include many types of investments not many types of mutual funds or stocks.  Focusing on one type of investment and calling it “being diversified” can cause many problems. 

Most of the time we are told to purchase stocks, hold them and over time we should make money.  What they don’t say is that people who make money in the stock market can make money if the stock price goes up or down.  There is nothing wrong with this, it is perfectly legal and everyone can do it.  The problem is, when the public is in the stock market as a “diversified” investment for retirement, they usually don’t do these things to make money in both directions.  You are betting the market is going to go up, you purchased the right stock at the right time and sell it at the correct time (minus the dividends if there are any).

True diversification should include many aspects of investments which could include but are not limited to; precious metals, real estate, businesses and cash.  True diversification should include investments in ourselves in the form of education, maintaining health and spending our time to the betterment of ourselves and family as well.

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