Diversification: Because You'll Need More than a Hammer to Build a Solid House

Updated: Apr 9, 2019

Not diversifying your investments is like pulling up on a working structure fire and having only one diameter hose on the truck. It’ll get it done for most fires, but eventually, you will find yourself in trouble and wish you had another tool in the toolbox.


The principle of diversification is the age-old wisdom of don’t put all your eggs in one basket. When it comes to diversifying your savings and investments, you diversify in four ways.


  1. Across asset classes: Stocks, bonds, real estate, etc. 

  2. Within asset classes :Don’t bet everything on Apple stock.

  3. Geographically: The economy is global. 

  4. Across time: Don’t time the market, invest systematically over years.


As much as I believe in U.S. businesses (that’s where I put most of my money), I don’t put it all there. If my well-being depended on the U.S. economy being strong and, heaven forbid, some sort of black swan event occurred that it could never recover from, my savings would be gone.


If you contribute to a retirement plan through your employer, the amount of guidance they give you can vary. At my department, if you don’t opt to manage it yourself, your contributions are invested in a target date fund based on your expected retirement date. Odds are that you are pretty well diversified if this is the case for you.


  • Sample description taken from Target-date Fund Prospectus: Target-date portfolios provide a diversified exposure to stocks, bonds, and cash for those investors who have a specific date in mind (in this case, the years 2051-2055) for retirement.



Asset Allocation for Target Date 2055 Fund


As you can see, this fund has invested across asset classes, at home and abroad, within the asset classes (gotta read the prospectus), and then you invest into it systematically over time. That is fully diversified.


If you are not sure how your savings are invested, you need to investigate. If you feel like something is not right, trust your gut. Seek help or get more educated on the matter. Your future well-being is in your hands. Take responsibility for it.


If you need assistance in creating an investment strategy that you can move forward confidently with we are here to help.


Contact me at Matthew@forwardfocusfp.com or schedule a consultation today.

Disclaimer: All written content on this site is for information purposes only. Opinions expressed herein are solely those of Forward Focus Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

fon-member-color-logo-png-1000-240.png
AssocLogo_4.png

Forward Focus Financial Planning, LLC is a Registered Investment Advisor in the state of Georgia.

(470) 228-0519 |matthew@forwardfocusfp.com |Clarkesville, GA 

  • Facebook