In our currently turbulent world it’s more important than ever to make sure that your money is working for you, gaining in value, and protected from some of the most likely dire scenarios. Here we’ll look at what diversification does, and how it helps you weather any coming storm.
Why Diversification Works
Diversifying helps to avoid losing most or all of your assets in one foul turn of the economy and investment markets. It’s a way to be sure that no matter what happens, you’re covered. Some examples:
Stock Market Collapse – Several economists have predicted a coming stock market collapse. If all of your investments are in stocks you stand the chance of losing it all if you can’t take your money out in time.
Hyperinflation – If the US dollar suddenly becomes worth far less than it currently is, you could see such a devaluation of your nest egg that it wouldn’t be nearly enough to survive on for the future.
These are only two possible scenarios. Most investors diversify to protect themselves from having their net worth rise and fall with just one company. As a serious investor you have to do whatever it takes to protect yourself and your money.
Diversify the Smart Way
If you’re going to diversify, do it in a way that makes sense for you. Some people think investing in a mutual fund is enough diversification and put all of their money into those. But that only works to make sure that one company can’t bring you down.
One way to diversify is with penny stocks, especially if you currently only invest in blue chip stocks. Check out this Penny Stocks Guide that shows you the ins and outs and gets you familiar with how it all works.
Different Ways to Diversify
There are several ways you can diversify, and you can also mix them up to be as diversified as possible against as many possible threats.
Different Companies – You can invest in different types of companies, including utility and tech companies. That way if one industry does poorly you can rely on the other to cover the difference. You can research which industries thrive in a recession so you know you’ll be covered even if the market turns.
Different Risk Levels – You can allocate some of your money for higher risk/higher reward investments and the rest can go into safer investments that will slowly go up, like bonds. It’s all about investing in what makes you feel most comfortable.
Different Types of Investments – You can diversify by spreading out your investments by type, such as some stocks, some gold, some digital currency, etc. That way if the stock market crashes or hyperinflation kicks in you don’t have all of your money tied up in one form.
But What About Andrew Carnegie?
Andrew Carnegie’s famous quote: “Put all your eggs in one basket, and then watch that basket.” suggests that you shouldn’t diversify, but instead get a stronger and stronger idea of how that investment is doing. In today’s dollars he’d have been worth more than $300 billion dollars, so it seems like he’d be a good person to listen to.
But Andrew Carnegie had the unique position of being in control of the business that earned him his amazing wealth. Not all of us have that privilege, and are relegated to the sidelines as stockholders and not business owners. We can watch the stock but have little if any ability to control whether it goes up or down.