Diversification is Your Key to Long Term Wealth
Why you need diversification.
Upon beginning this blog and in the initial stages of my exploration into the world of investment I thought I could succeed based on a minimalistic and single stepped approach. In stocks. I knew enough about diversification to stick to mainly market index funds and held entire countries or industries in a fund. I calculated contributions, previous returns and time to reach a naive conclusion that all would be fine if I stuck to a cookie cutter plan. Simplicity, time and consistency would do the heavy lifting.
What I didn’t really account for, or didn’t take into consideration was the ever changing landscape of the world, the markets and economies. Highly unlikely circumstances, such as what if the countries, industries and even type of investment I was putting my whole net worth in and betting on became obsolete, lost their dominance or experienced decades of downturn.
These are highly unlikely, but not impossible. Look at the financial histories of countries like Ancient rome, or not so long ago Venezuela and Japan. Look at businesses like blockbuster and sears.
Even rock solid is not impenetrable so it seems. Now imagine having all your investments in one of those baskets.
Aristotle said change is the only constant. So we be diversified to weather the inevitable downtowns in any industry or space of investment.
Aristotle also was a proponent of sharing material that you found useful. So if you like the rest of this article, why don’t you share it with your friends?
Do I need Diversification?
Chalk it up to good old maturing, experience and age. My outlook and vision has expanded. I’m considering investments I previous dispelled , housing for example, and putting further emphasis on areas I focused less on in the past.
They say the average millionaire has an average of 7 income streams. Below are a few suggestions of how you can diversify your investments and stay adaptable to come out ahead in the future through these turbulent and exciting times.
Real estate as an investment
I previously spoke a lot of flack about real estate. From the research I did it really seems like it’s less of a headache and overall better returns to just invest in the market and rent. While I still believe that to be true, since I’ve gotten more interested in diversification I do plan in the next few years to divulge my investments into real estate. The reasons being are that it will spread out my risk, expand my financial insights, and recently the idea of owning my home has become appealing. Whether my exposure to real estate will encompass multiple rental properties, renting out portions of my house to a roommate or participating in airBNB, or merely owning my own home remains to be seen.
The key to real estate and much other investments is to not overextend yourself, be aware of the total costs of ownership, and not have too much of your total net worth pent up in real estate. Education is key. Know the strengths and weaknesses of this investment.
Cryptocurrency, blockchain and bitcoin
Cryptocurrency might be the wrong word for this area of investment now. I read an article the other day suggesting they should actually be referred to as crypto-ASSETS. Nonetheless, this new form of internet money, assets and investments are not to be overlooked.
I have only recently begun seriously looking at and getting involved in cryptocurrency. Had I taken the plunged even a year ago my financial situation would be significantly different.
I will get into a deeper look at crypto very soon in another article. But for now what you need to know is that we are still in the very beginning of this space and there will be serious development in the coming years. If you don’t get in soon you will be kicking yourself. Crypto is based on technology that is poised to change the world. Think bigger than the internet in terms of disruption.
Based on this technology, crypto is becoming a very necessary part of your investment portfolio. Due diligence may be more important for this investment than any other at this time because it’s so new, quickly changing and unregulated. Again education is imperative.
Fun fact: $100 invested in bitcoin back in July of 2010 when it was originally offered to the public would be worth north of $90 million today.
ETFs and the stock market
Currently the main investment style of this blog and of my own personal portfolio. Owning stock is still one of tried and truest ways to build wealth. I’ve written tirelessly and endlessly on this particular topic.
To reiterate, look at total market funds that have low management fees. Total market fund or total US funds are my personal favourite. Nearly every large company operates in the US stock market. Long term they are relatively safe. The market goes up because businesses are growing. Remember you are owning pieces of a business with stock and ETFs.
Another area of particular interest is emerging markets, such as china, India, and Brazil. They are a bit more volatile but with that comes large increases.
99% of people are decently good enough at something that other people will pay them for. This is true whether you realize it, and capitalize on it or not. The key is to identify your skills and the utilize them. Or take the time to learn something new so you can get paid for it.
A side hustle is generally something you can do in the evenings or on the weekend. It can even become your full time job at some point.
A side hustle can generate a bit of cash that can make big impacts on your life. What would an extra $500 or $1,000 a month mean for you?
My current side hustle is this blog and teaching English online. They currently support me completely in fact.
The options are endless in this category. Start thinking about your own personal skills. A side hustle might allow you to start doing some real investing and help you reach the next level. It’s all about diversifying your income sources to increase your net worth.
Career or personal business
Last but certainly not least. Is your day job, career, or primary business. For most people this is their largest source of income for most if not all their lives. The goal is to not have to rely on this one source, but the important of your active earnings cannot be downplayed. Unless you get lucky and/or come from money, your ability to earn is step one in the wealth building game.
From experience, I beg you to consider big picture what any career, discipline or area of study will yield financially when choosing a job or career. Get a skill people will pay you handsomely for, then worry about following your bliss.
To sum it up
The surest way to ensure your financial future is to hedge your bets and diversify among many forms of investments. You must also stay adaptable to take advantage of new opportunities.
This is possible through education and action.
Best of luck!
If you liked this article or even found it a bit educational, share it with your friends. Could they benefit from reading this? Also I would love to hear about what you are investing in! Comment below.
A word from our sponsors
Financial freedom is my top priority. I personally use Questrade to invest because I can buy ETFs for free and avoid high trade fees. They also have stellar customer service, when I need to speak to someone about my money I want instant answers, they provide that.
Become a modern poet with your very own piece of online real estate via a blog and hosting from Web Hosting Hub.com. Superb customer service, no technical issues and always competitive pricing.
Great bodies & minds are built in the kitchen. For that extra edge, the top performers use supplements.
Thank you Charles! I absolutely 100 percent agree that diversification is the key to long term wealth.
Thanks for the comment Marilyn. All the best in your pursuit of wealth & financial freedom.
Great write up! A single great investment will work great… until it doesn’t and it’s important to protect against that.
I’m not sold on crypto currency being “bigger than the internet in terms of disruption”, at least in terms of investment opportunity. And besides, when / if they are to be utilized on a larger scale than first world government backed currencies, public companies will have holdings and perform transactions in them. There are finance guys working for these companies much smarter than I, so I delegate that investment choice to them. 😛
Thanks for the comment Steven. Crypto definitely has a lot of question marks still, but I feel it’s going in a promising direction. Cheers
The Three Legged Chair Theory of Income Streams - That Charles Life
4 Canadian Marijuana Stocks to Keep Your Eye On in 2018 - That Charles Life