If you like omelets, piling all your eggs in one basket is a terrific idea. You need to spread those eggs out, though, if you want your investments to survive a fire in the kitchen. Let's speak about Diversify Guy and how to spread things out and get strange with your money.
First, everyone and their grandma thinks about stocks and bonds. This is a classic pairing, right? But why not go for three? Add in some real estate and some commodities, like gold or even coffee beans if you're feeling crazy, and your portfolio will start to taste really good.
Now, think about how much money you had in tech stocks in 2000. Oh no. Same thing happened with housing in 2008. It can be harmful to think like a herd. Investing in farms or old toys, for example, isn't always a bad idea. Did you hear that sneakers may sell for thousands? Someone is making money.
It's time to do some math at the kitchen table. Let's say you want to grow. Big-cap stocks may give you stability, but what about small caps? They move like a puppy chasing its own tail—exciting, sometimes untidy, but those returns can really move. Put your options in a variety of sectors, like banks, healthcare, and even energy. Storm hits one business? You don't drown.
Let's talk about borders. If your money only works in one country, it is asleep half the time. Add some equities from other countries to the mix. Europe is strange, Asia is busy, and emerging markets? Like putting money on a horse that isn't expected to win. You might not win every bet, but the prize can be great.
Don't forget about money. Sounds boring, right? At gatherings, hardly one talks about how much money they have in their savings account. But when a chance comes up, individuals who have some extra cash can jump on it. Having money on hand is like having a pizza menu on hand: you're ready when hunger or fear strikes.
Bonds are still around, too. They are like that reliable friend who never lets you down when it's time to relocate your furniture. Choose a mix of municipal, corporate, short-term, and long-term. The perfect mix might help you sleep at night and get through a storm.
Diversification isn't just tossing darts with your eyes closed. You also need to know when to rebalance. Maybe one section of your portfolio grew a lot—great news! But don't be greedy. Cut things back so they are all the same size. Like cutting a hedge: if you don't take care of it, it will turn into a jungle. If you take care of it, it will pay you back season after season.
Keep in mind that there is no miraculous crystal ball here. When the markets go down, you might go up. That's what investing is all about. Don't worry about it and maintain your mix healthy. You don't have to be a market guru; just stay curious and be willing to change things up every now and again. Get rid of the fear of missing out, stay flexible, and diversify. You might get a thank-you card from your future self. Or a pizza.