Are Your Investments Protected Against Risk?

One of the areas that I will be covering at my seminar is the concept of diversification. Diversification is your main tool to combat risk in your investment portfolio.

So what is diversification? It is the process of spreading your investment risk across all types of investments that historically don’t move in the same direction. The key is that the investments balance each other out. For instance, if stocks are going down, bonds are hopefully going up. Maybe you are using alternative investments or real estate investment trusts. It is all a balance.

Unfortunately, most investors confuse diversification with quantity. The thought is that they are covered for risk as long as they have their money spread out over many different investments.

I was meeting with an individual and he made the comment that his 401(k) plan was well diversified. He showed me his portfolio. His money was spread out over nine different mutual funds. The problem is that his money is 100% invested in stock. The probabilities are high that in the event of a market downturn, all nine of those mutual funds will move in the same direction. That is absolutely no diversification at all.

If you are going to use a buy and hold approach with your investments, then you will need to use a strategy that I call extreme diversification. This would require you to spread out money over all many different types of investments so to balance out risk.

Another way to diversify your money is simply looking at it from the standpoint of how much you have invested in stocks, bonds, and money markets or fixed type of investments. The percentages that you use will greatly impact the amount of risk that you are taking.

For more information about the seminar go to this link – there is very limited seating left.

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