Learn Why Diversity is an Important Part of Managing Investment Portfolio Risk
Jan 30, 1999. There’s an old saying that a person shouldn’t put their money in one basket, and
for a very good reason. In case you should pick an issue that goes down the tubes you don’t want to loose all the
monies you have invested.
But of course there is another theory that a lot of money men have done just that and have made
them very rich. I am not that much of a gambler. I just can’t see putting all my money into one issue and praying
that I won’t loose it down the road.
I’m sure you feel the same way as I do, at least I hope so.
Keeping your money spread out through funds or a variety of stocks helps cushion the bumps in a volatile year in
which performance varied hugely from one sector of the market to another. Starting in July and going through October
when the market took a nice tumble, not many people thought that it would come back the way it did to reach new
highs.
Let’s suppose, that you kept your money through all this turmoil in a diversified package of
stock funds, bond funds and money market funds. You would most likely be sitting now with a respectable year to
date gain. Naturally you would not have had a 20% gain for the year either like the S&P 500. But what would
have happened if the market did not come back. You see, it pays to diversify.
A total of 7% for the year is not bad at all, especially when the rate of inflation is running
about 2% for the year. I’ll take 7% a year from now to dooms day and be able to sleep at nights!
George
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