Diversification of Investments
Now more than ever, we are hearing more people talk of diversification of investments. Every American has friends or relatives who lost big in the stock market. Unfortunately, we have ourselves to blame by not educating ourselves on what we were getting ourselves into and diversifying.
If you were planning on retiring in 2 years, would it make any logical sense whatsoever to have all your retirement savings invested in the stock market? Or even risky mutual funds? Of course not, now that we have witnessed the roller coaster of the past 12 months, anyone would answer no. But prior to the financial meltdown, we all got greedy. Stocks are supposed to make us money, right? How are you going to make a quick buck without the risk?
Our motives were thrown out the window and greed took over. Everyone wanted to make money quick rather than recognizing what they were really looking for- safe, solid investments to help us plan for retirement. Although we have financial advisors and professionals to help us along the way, it is most important to educate ourselves on our goals, and most importantly, our timelines.
As you approach the time you actually need the money, you need to be in a fairly risk-free situation. Now when you are young, and recognize that you may have 40 years until retirement that is the time to take some risk with your money and invest in the stock market or riskier mutual funds. When you are somewhere in between, you need a good balance of both, so that you have the ability to make money, but also have a smaller chance of losing money.
If everyone had responsibly diversified their investments, most people we know would not be so financially devastated right now. A good plan is heavily dependant upon the type of person you are. If you’d prefer to not see your investment ever decline, but rather put more money away and watch it slowly grow, you may diversify with safe mutual funds and bonds.
If you are riskier and want the ability to make more money faster, you may want to throw in some stocks and tech based mutual funds. It is always important though, no matter what stage you are at, to not put all your eggs in one basket.
Diversification of investments may be the new theme in investing, due to the radical financial times, and can’t hurt anyone after we’ve all learned this difficult lesson in 2009.
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