Your Wealth, Health, And Lifestyle Newsletter

How To Diversify Your Retirement Portfolio

By Jason Markum

Investing is a tricky business and one that most people don’t know enough about. The fact of the matter is, if you didn’t study finance and economics in college and then spend a goodly amount of time in the finance industry working as an adult, you really can’t be expected to understand how investing really works, especially investing in the stock market.

Most books out there in the book store don’t help either because they are written by people with an agenda, and that agenda is NOT to teach you how to be a better investor. Plus, investing methods change yearly, sometimes monthly. What worked yesterday likely won’t work tomorrow. There’s even a term for that. Why is it the case? Because if something works, everyone starts doing it. If everyone starts doing it, it likely won’t keep working any more because too many people are doing it!

My point is that this is hard and isn’t going to get any easier. Let’s take diversification for instance. Most people don’t really understand what this means.

When my parents started investing in the stock market they told their broker that they wanted to diversify because that’s what they had heard you should do. What did their broker do? He suggested they buy stock in several different industries, like the computer industry, and the telecom industry, and the industrial industries. Diversification!

But that’s not really diversification at all! It’s still all the stock market! Real diversification means investing in many different things, like the stock market, and the bond market, and in real estate, and in precious metals like gold and silver, and maybe fine art, and many other things.

You see, it’s not enough to be diversified into different stocks. And TRUE diversification in the stock market means that you own hundreds, if not thousands of different stocks…not five or ten. This simply isn’t possible for the average investor who doesn’t have the money to buy a thousand different stocks.

You can get around this as a small investor by purchasing index funds that tempt to mirror the broad index. These index funds DO buy thousands of different stocks. But you are still not diversified truly unless you put a large chunk of your investment money outside of the stock market into such things as government and corporate bonds.

Ah, but then WHICH government bonds do you pick? US bonds? UK bonds? Australian bonds? And which corporate bonds?

You see! It just never ends!

That’s why I suggest the average investor puts 65% to 75% of their investment into a broad market index like an S&P 500 index fund, through regular, automatic monthly investments straight from your paycheck. Put the rest in TIPS, inflation adjusted US government bonds.

And if you want to put a small portion in gold or silver, have at it…but I don’t suggest more than 5% or so of your over all investment.

Investing is complicated, even for the professionals! But this allocation that I just mentioned above will set you up as safely as possible and has proven to return solid returns that beat inflation and maintain your wealth for years to come. The stock market isn’t about making a killing, it’s about preserving what you already have and this diversified suggestion should do the trick.

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