Roller coaster rides at theme parks can be fun. Most people though, don’t enjoy those same big drops, twists and turns and having to hold on for dear life when it comes to their finances and investment portfolios.
Sophisticated investors enjoy the benefits that come with the highs of the market. They also know that deep dives can wipe out years of good returns very quickly. So, they prioritize stability and consistency.
There is incredible peace of mind when you are confident that you can count on income coming in, hard assets that won’t go to zero, and being able to generate steady returns, no matter what chaos is going on in the media.
If you aren’t enjoying that peace of mind and confidence in your investment portfolio right now, how do you get it?
This all comes down to the old saying “don’t put all of your eggs in one basket.”
If you do, and it drops, you lose everything, right? The same goes for your money. There are very few guarantees and certainties in life. At least not beyond death and taxes.
If you diversify your investments, then even if really crazy and unexpected things happen out there you can sleep well knowing that your investment portfolio can keep producing consistent results. One asset may be underperforming one year, but another will be up and balance that out, and vice versa.
- Watch Out for Fake Diversification
Most of us have heard of diversification, right? Yet, so many otherwise highly intelligent and accomplished individuals end up getting sucked into fake diversification.
It happens to doctors, lawyers, entrepreneurs and even fund managers every year. They end up going all in on one thing that looks really attractive. Or their broker says “No one really knows what’s going to go up and down or when, so just spread your money and retirement funds across the stock market. They might suggest a blind fund or fund of a fund that has 100 or more different stocks in it.
Now, some people do really well in the stock market. A few key big manipulators do well. Maybe very maverick day traders with inside knowledge and who are elbows deep in it every day do okay. Mostly it is designed to suck money in and transfer wealth to the few.
This typically happens in two ways. Few people go through all the fine print to figure out all of these stocks they are invested in. They don’t know where their money is or whether it really has any chance of winning. They totally abdicate any real decisions.
Secondly, they are set up for fake diversification. While there are some exceptions, what happens is, when the stock market goes down, the vast majority of stocks all suffer at the same time. Mentally, people get scared of the stock market and it plunges. They sell off index stock funds, pulling everything down, regardless of the fundamentals. So, you could have been in JC Penney, Chuck E. Cheese and Upwork, but they are all tanking at the same time. Because there is no real diversification. It’s fake. That even just happened with cryptocurrencies, as bitcoin’s performance followed the dip in the stock market.
So, how do you diversify intelligently and beat these common pitfalls?
Hybrid fund investing is a great way to simplify this. The NNG Capital Fund focuses on one market sector, but includes a variety of assets and asset performance strategies in that sector at the same time. So you have deep and broad diversification, by just making one investment.
Invest in things you understand. You might not understand or need to know the exact mechanics of every part, but invest where you get the fundamentals. If you are a scientist and engineer who gets what it takes to develop pharmaceuticals and to get to and survive on Mars, and all of the politics around that, great. Most don’t. In contrast, most people understand the basics of real estate. At some point in our lives we’ve all lived in real estate, rented, bought, or had a mortgage.
Look at the value of individual investments. This is another Warren Buffett principle. There have been periods when it is almost impossible to lose in some sectors. In bull markets you may have made the worst investments in stocks, but still made money. In bear markets, you can still make great money (even more), but you have to make sure those investments make sense. Are you buying in at the right price? Is there already cash flow? Is the business model sustainable? Is there a good management team in place?
Finally, get a good guide. Anyone can look like a superstar guru for five minutes in a bull market. In times like these, all of the difference is made by investing with those who have the experience of having been through several market cycles and intuitively knowing how to adjust and the moves to make.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund