The Press and Journal (Aberdeen and Aberdeenshire)
Diversification… the only free lunch in investing?
“Don’t put all your eggs in one basket”. This is sage advice when it comes to your finances. With the recent cost of living increases that we’re all enduring, having different options at your disposal is always a good idea.
For your wealth, it’s no different. If you’re reading this, chances are you’re engaged in your finances and want to understand what you can do to make your money work harder for you.
You will no doubt be a hard worker but are your working smart? The goal for many of us, is a free calendar that we can fill with what we choose and desire to do, rather than what our mortgage payments encourage and sometimes require us to do.
To do this, spending less than you earn is step one. It makes sense that if money you bring in on a regular basis is more than the money going out (which is easier said than done currently). Once you’ve got this in place on a regular basis you can start to build up your contingent funds, often referred to as an “emergency fund”.
This is a level of easily accessible cash should something unexpected pop up. As a minimum, this should cover three months of your expenses in case something crops up. More than this really comes down to personal preference.
If you’ve got these two things in place and any money you’ve built up isn’t forecast to be needed for the next five years, you could start to invest it.
Where and how comes down to what the money is for. Is it for a trip of a lifetime, is it to fund a wedding or honeymoon, to build up money for a deposit or to achieve financial independence so that you can look forward to life after work, with life being on your own terms.
That will dictate whether products such as an Individual Savings Account (ISA), Pension, Investment Account or something else is most suitable to help you achieve your goals. The important point is to get started.
“Compounding” has been referred to as the “8th wonder of the world”, so the earlier you can start the greater that snowball can grow and build up momentum.
No one can predict the future and that’s why diversification may be the only free lunch in investing. Unless you have a crystal ball, diversifying where you put your money is the simplest and easiest thing you can do to achieve long term returns.
I couldn’t tell you whether the price of New Zealand wool will be a “better performer” over the time you’re invested than Swedish flat pack furniture. We would all love to be able to pick the next Tesla, Microsoft or Brewdog, but the reality is, even if you dedicate all your time to researching it, lady luck could knock you back down.
The point is, you don’t need to be an expert, you just need to diversify what you invest in, on a global basis, so that you can enjoy the benefits.
Our world continues to evolve and on a podcast I recently listened to I heard the phrase “if you’re not agile; you’re fragile”. Consistent incremental steps towards your goals may not feel like progress at the time but they really start to add up. There will always be bumps in the road and diversions to the master plan you have to adapt to, but you have the ability to manage this if you know the destination you’re aiming for.
And that’s why you should avoid putting all your eggs in one basket. You never know what the future might hold, exciting or otherwise.
If you are unsure where to start, seek qualified financial advice and work with someone that you trust, who will be with you through thick and thin and provide the expertise and objectivity you need to achieve your goals. Sticking to your plan with the right guidance can pay dividends (pun fully intended) over the long term. You are your own biggest strength, so surround yourself with people who help you raise your game and allow you to focus on the things you hold most important to
you. Set your north star (your destination, your goals) and go out and get it with the help and guidance you need to keep you on track when life throws you its inevitable speed bumps.