Many times when I meet with investors I am asked ‘where is the best place to put my money?’ The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.
These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear or hype in every environment.
A true advisor will often tell you things you do not want to hear. Remember if your advisor only provides the product you ask for. They are not an advisor but rather a salesperson or broker.
To succeed in investing being diversified means looking different.
Most investors are narrowly diversified into top performing funds or asset classes of the last five to ten years. They often feel diversified but aren’t.
To be diversified means including asset classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.
Many of you may remember the mid to late 1990’s. Everyone was concentrated in U.S. Large Cap Growth funds and more specifically tech stocks or .com stocks. These were earning 30 to 35% per year during that period. At the same time a globally diversified portfolio was earning approximately 8%.
Investors were avoiding these diversified portfolios like the plague. All their investment dollars were in tech stocks or large cap growth. Because it was different this time…it was a new paradigm. Or so the ‘experts’ said.
When the tech bubble burst in 2000 these investors were devastated. In some cases losing 40, 50 even 60% of their value almost overnight. In fact, there were many dot.com companies that lost everything.
At the same time the globally diversified portfolio had a positive year in 2000. There of course is no guarantee that this will repeat. But the evidence is clear. A globally diversified portfolio at your level of risk will earn great returns over the long term.
What the tech stock investors did not realize is that they were gambling and speculating with their money and not investing.
Remember the equity markets are random and unpredictable. Getting rich overnight is although not impossible, is highly unlikely.
To succeed in investing you must own equities….globally diverisify …rebalance.