Welcome back once again to the Asset Allocation series. In this entry, we’re going to keep looking at different ways to diversify your investment portfolio to make sure that it can stand up to whatever the future might hold.
Remember, the more diverse your investments, the more likely you are to be able to survive sudden changes in the economy; even disastrous events like the collapse of an entire industry!
Start Investing Early On
Another key to being able to survive those disastrous events is our tip for this entry: start investing in your portfolio as early as you can. The sooner you begin to invest money, the more you stand to benefit from it. That much is obvious. However, this has some other unforeseen benefits that should be mentioned.
First of all, if you invest early, you’ll stand to make a great deal more off of the compounding interest that is hopefully associated with your safe long term investments. As a result, you’re going the most value possible out of your money, in addition to just simply having the opportunity to invest more of it in the first place.
Time Can Heal Wounds
Secondly, there is the matter that, the longer a span of time you invest over, the smaller each individual year will seem in the scope of things. If you only build up your investment portfolio for a total of five years, and two of those years are quite bad, you might well said that you had a fairly bad run of things overall. Those two years might represent a critical setback and the difference between a hard retirement and a luxurious one.
However, if you had been investing for a full thirty years, those two years wouldn’t seem anywhere near as significant. In fact, if they were bolstered by 28 excellent years of successful investment, you probably wouldn’t remember them at all by the time you reached retirement age.
See you next week for part 6 of Asset Allocation.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2009
{ 4 comments… read them below or add one }
It is simple advice like this that most people tend to forget. Have diverse investments, start investing early, and use common sense, seems easy but most people can’t understand it. Just basic, one day people might “get it”. This is the type of advice I have been using for years.
There is one thing I would add to your comments, and it’s that investors understand that markets move in periodic motion, and depending on your timeframe, drawdowns from “counter-trends” are a natural part of investing. Riding a bull requires patience through many ups and downs.
But, learning to use stops on long term investments is just as important, and can keep drawdowns from becoming knock downs. I prefer a 100 day moving aveage. When its moving up I’m bullish, and when it’s moving down, I’m bearish. It’s not perfect, but would have protected most of your money during the ugly bear in 2007-08, and had you long in April of 2009.
Hi Sean,
This is great advice and one of the reasons I’m really starting to look for a place to put some money for my children. I’m hoping if I choose the right investments, it’ll actually be worth something when they’re older.
Starting early and taking advantage of the compound interest is excellent advice.
This is good advice Sean. We are always in such a rush and want results now. We need to look at long term benefits and plan wisely.
Look at Warren Buffet he still lives in the same house since he was married. Do you think the value of his house has increased? of course it has and even more so now that he is so famous!