Wednesday, June 7, 2017
Diversification is not just for investing….The Must Haves
We have all heard it before: You have to diversify. Well what does that mean and why should we do it? Simply put diversifying means not putting all your eggs in one basket. Well, that is easy enough to understand right. As a Financial Advisor I would never recommend that anyone put all their money in one investment. So that’s it then right? We still haven’t answered what it means to be truly diversified. With my clients, I always recommend being diversified over several platforms, including investments. Well, what other areas in your life should you be diversified? I am glad you asked! In this post, I will describe in what areas of your life you should try to achieve diversification. I will also describe what this diversification entails, sort of a blueprint to getting the most bang for your buck
1) Diversify Your Employment
Many people fail to see how important it is to have money coming in from several different sources. Diversifying your income stream is very, very important. This is important because economic downturns, bad company governance, natural disasters, insane bosses and many other factors can lead to you not having a job. Many think government jobs are super secure. That might be true until the next government gets voted in and decides your department is unnecessary. Both the private and public sectors experience fluctuation and the worker is usually the first victim. Having multiple income streams, even if they are small, allows you to never be down and out completely. It can also help you compartmentalize your income. What I mean by this is you can segregate money from one source to accomplish one task. I used to work a cheesy bartending job twice a week and I used the tips from that to give me some spending cash for the week. I also used the paychecks every 2 weeks to cover my Bell bill and my Hydro bill for the month. Not bad for 10 hours a week right? The more income streams you have, the more secure you will be. Never let one person own all of you. Side hustles have become essential, so get creative and get that dough.
What to Look for in a Career: 10 Deal Breakers – Budget Boss
2) Diversify Your Protection
Many people think their group plan at work covers them completely. While I believe every employer should offer group insurance, they do so at a cost. Because group insurance covers all employees with a blanket, it does not fully meet the needs of each individual within the group. It just isn’t possible so in order to diversify your protection you must seek personal coverage. Group insurance is also not portable. What that means is that if you leave the group, get fired or quit, you are now uninsured. Look back to point one about how losing employment can hurt you. Imagine you now have no life insurance, no dental, no prescription, and no long-term disability. You have now taken a bad situation and made it much worse. What I am getting at is no employer truly thinks about your coverage when making decisions. You have to take the steps to diversify your protection. Ask your financial advisor about all the scenarios you might face and have a contingency plan in place should your boss decide to ship off to Mexico.
7 Life Insurance Myths – Budget Boss
3) Diversify Your Assets
Back in the day, it was very common for people to have money hidden all over the place. Memories of World War, Great Depression, Oil Crisis’, turbulent times and numerous recessions had people focused on security instead of returns. These days everyone is looking for the “get-rich-quick” stock tip. What they fail to realize is that the focus should be on contributions and loss-aversion. This is why you should have your money spread around in various places. The equity market is great for growth but with growth can come volatility. The real estate market seems safe, but only if you know what you are up against. Cash is and will always be king, but with cash, growth can be hard to find or non-existent. What do I suggest? Any and all of the above! Having your hands in many different jars will allow you to experience growth in many different situations. The ultimate goal is preservation and tax-efficiency. Keep as much of every dollar you make as possible and you will come out on top. This is why even I ask my team about my own investment choices. Some of it is to reaffirm what I already know but with an ever-changing landscape the more eyes, the better.
5 Tips For Diversifying Your Portfolio – Investopedia
People like to talk about diversification like it is some sort of mysterious formula to be followed. In the world of your money what the word “diversify” actually means is, “Cover your butt.” Don’t let one person own all your income or protection. Also, spread your wealth around dabbling in many different areas. Many people who are risk-adverse won’t touch the stock market with a ten-foot pole. Others who love the action don’t leave anything in cash. Both are wrong and should be analyzed. We are all different and who you are will determine what you do. The key is to find a solution that works for you. It should give you what you want and also allow you to sleep at night. Knowing you can’t be broken with any of life’s obstacles is worth its weight in gold. In my opinion that is true freedom.
“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.” -Henry Ford
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” -Paul Samuelson
“The Stock Market is designed to transfer money from the Active to the Patient.” -Warren Buffett
Email – joe@budgetboss.ca
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