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Diversify Diversify Diversify your investments

Diversify Diversify Diversify

Written by R. A. Stewart

“Put your money in several places-many places, in fact-because you never know what kind of bad luck you are going to have in this world.”-Ecclesiastes 11:2

The number one rule when investing your money is to diversify. That is to invest your money in several places. To invest money in one place is called “Placing all of your eggs in the one basket”. This is also known as speculating. 

During the 2007/08 Global Financial crisis there were people who lost their entire life savings when the company which they invested their money with went into receivership. The companies concerned were offering high interest rates to investors. 

There are sometimes stories floating around of people who made a fortune on the share market by investing in one company. That is all very well when it comes off, but such investors will try the same thing again and again and again and give up their gains plus a lot more.

Greed is what gets the better of some people. If you are going to speculate then do it with discretionary spending money. This is money you may have normally spent on entertainment, your hobbies, eating out, gambling, and the like.

Your retirement fund should not be used for one of your get rich quick schemes such as playing with the crypto market. That should be done separately.

Diversification is more than just spreading your portfolio among different companies, it is investing in different platforms. Investing your life savings in sharesies or robinhood is not diverse even if you were investing in a range of companies. You just don’t know what will happen to these platforms in the future.

The same thing applies when investing in crypto-currency. Don’t invest all of your bitcoin with one bitcoin exchange but spread it around among several to reduce your risk. But remember, Bitcoin is volatile so only play the crypto market with discretionary spending money.

Invest in different types of industries such as power companies, banks, insurance companies, farming, etc. 

In order to grow your wealth it is necessary to take calculated risks, not reckless ones. Share market investors have the option of investing in individual companies or managed funds which are a form of diversified investment. In this age it is possible for investors to deposit money into an online share market platform and purchase shares into individual companies for a minimum amount. This enables the ordinary man or woman in the street to get involved in the markets.

Hands-on investing will not only help you to grow your wealth but it also increases your financial literacy. With plenty of experience behind you there will be fewer mistakes as a result of better decision making.

Always remember that whenever there is a chance of a capital gain there is a chance for a capital loss. Your retirement fund balance may be down as it will be from time to time due to the volatility of the share market but that does not mean that you have lost money. It is the nature of the ups and downs of the markets, Get used to it!

You don’t have to be rich to invest but you have to invest to get rich so what are you waiting for?

About this article

This article is not financial advice and may not be applicable to your personal circumstances therefore discretion is advised. You may use this article as content for your blog or ebook.

Read my other articles on www.robertastewart.com

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MESSAGE TO INVESTORS-“Don’t Panic.”

Important not to panic during sharemarket drop

It is important not to panic when the markets are falling as has been the case recently. Whether you have a grand or two in shares or have 1000s invested in the sharemarket, it is best to ride it out the storm and just let the markets bounce back in your favour as no doubt they will. That is if you had followed the basic rules of investing.

The most important rule is to never invest in the markets money which you cannot afford to lose. If you are saving for a house then the sharemarket is not the place to invest your money-you should instead go for more conservative investments. The worst thing that can happen if you had invested your house deposit money in the sharemarket is to find that the value of your investment is reduced when it comes time to withdrawing your money.

If on the other hand you were investing for your retirement then you can afford to take risks as this is a long term investment and you will be able to take advantage of the gains in the market which for decades have outweighed the falls. Some financial advisors would tell you to scale back to more conservative funds the closer you are to retirement but that all depends on how soon after retirement you actually need the money. This is particularly relevant for those with kiwisaver accounts (NZ retirement savings scheme). (Not necessarily applicable in your own country).

It is also important to diversify your investing so that your risk is spread out over several companies and industries. If you have the means to play the market directly then this is the most important rule to follow. It will help you to withstand a sharemarket down turn better because some companies fare better than others during an economic downturn.

This week’s sharemarket down turn is a timely reminder to exercise commonsense when investing money by not placing all of your eggs in the one basket and to ride out the storm.

This article is not intended as financial advice but rather is the sole opinion of the writer.

Bob

www.robertastewart.com