For as much as I enjoy reading and writing about personal finance and related subject matter, I still find that there are certain things that tend to block my ability to diversify my finances at times. It's not that I don't know I should do it. It's not that I don't know how to do it. Sometimes though, there are certain factors or life situations that make my opportunity to diversify my finances just a little harder than it should be.
The following are a few of the hindrances that make it harder for me to diversify my investments and how I try to combat them.
For as interested and concerned as I am about where my money goes and what happens to it once it gets there, even I have fallen prey to the convenience of not diversifying my money. It can be work to learn about and do research upon various investments, investment styles, funds, etc. And it can be more work to act upon what I learned once I've done so.
The convenience of letting my money sit where it is or remain in the fund(s) it's already in can be easy. And "easy" can be the downfall of diversification. Eventually though, I realized that for as much as I watch my investments, gauge their progress, and review other options, I spend all this time, yet I'm too lazy to pick up the phone and call my retirement fund manager or go sit in an air conditioned bank? What's hard about that when it comes to better securing my finances? What's easier, doing that, or working hours upon hours to actually earn that money in the first place? I put the effort in to earning it; so I might as well put a little in to protect it.
And when I reason it this way, it makes it much easier to take the little time and effort necessary to help diversify my finances.
Greed and Expectations
I have a feeling that many people's expectations are skewed by projections from overly-optimistic market analysts, fund managers, and other financial professionals. Many times, I've seen such projections based upon an estimated 8 percent return on investments. While that's a great number to shoot for and all, for many of us -- and with market fluctuations -- it's not always a realistic one over time.
This can leave an investor putting too many eggs in one basket and not fully taking the potential risk of certain higher yield but higher risk investments into consideration. I'd prefer to leave out the greed side of things and spread my investments out over a broad range of risk and reward scenarios. I do my best to weigh my portfolio, if anything, toward the safer side, preferring things like income funds and government savings bonds to more volatile stock funds with the chance of greater returns but the chance of greater losses as well. I'd rather have a guaranteed 4 percent, than an estimated 8 percent that never materializes.
Sparing the Money
When I look back to my younger days (before I started working for myself), I wasn't necessarily earning a great income at the beginning of my career. I could have looked at that measly paycheck as an excuse not to diversify. Instead, I kept my expenses low, avoided big ticket purchases like new furniture, a new television, a new car, etc. and spread my extra money out among various investments available to me.
At one point, I was putting 10 percent of my paycheck into our company stock purchase plan, 5 percent into our company 401(k) plan, and about 10 percent into a liquid emergency savings fund. This provided me not only with the security of cash, should something like a layoff or financial emergency occur, but put money into a more stable company stock, and a well-balanced (between stocks and bonds) 401(k) fund that was matched by my employer at about 60 percent of my contributions.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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