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    Investing: Diversification & Risk
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Dividing up your investments reduces risk. I have known people who had too much invested in their company stock or in real estate, and when a financial collapse or housing crash occurred, they were set back twenty years. Dividing your portions helps insulate you from swings and market shocks.

Have a plan and stick to it, but reevaluate your plan and risk levels at least yearly. A portion of your money could be split into housing (own house or rental), in money markets, bonds, stocks, gold, mutual funds, foreign stocks, large companies, small companies, etc.

Many people foolishly try to time the market. I don’t know anyone who wants to buy high and sell low, but timing the market turns into gambling of the highest adventure. Guessing when to get in and when to get out of the market is akin to playing slot machines in Vegas. Timing the market is risky business. Even trying “spiritual investing” by praying when to enter and exit is a slippery slope, although I have done pretty well with this approach. God doesn’t want to pick winners and losers, although I cannot discount how He might allocate His favor and anointing.

The best approach for ensuring that you don’t buy high and sell low is to have steady, regular investments. This is called “dollar-cost averaging.” Instead of attempting to guess the market’s directions, just keep saving and investing regular amounts at regular intervals. With this approach, you will be buying more shares when prices are low and fewer shares when prices are high. Over months and years, this approach will average the cost of your shares. The hard part about this is when the market is down or way down. This becomes very important to continue investing during these times.

Don’t make this too difficult. It simply means to invest the same amount each month, through thick or thin, crash or bull market. In down times, that monthly amount buys more shares. In up times, that monthly amount buys fewer shares. Instead of risky guesses, this is a disciplined approach that will yield diversification, and help you avoid greed and also avoid fear and a daily watching of the market. Rejoice when the market goes down. You are buying at a discount! Rejoice when the market goes up. You are doing better on paper!

Swim upstream. When others are panicking and exiting, that is the time to consider buying. When others are jumping on bandwagons of extreme investment schemes, and pinnacles of performance, these might be bubbles ready to burst, and it might be a time to consider exiting.

Other Considerations
People know what they should be doing; they just delay taking action. Here are some investing priorities that will help you reach your long-term goals:

  • Automate your investments. Make it a non-negotiable. Have money taken right from your paycheck.
  • Maximize your 401k matches. The 401k is actually replacing Social Security in regard to money you can actually count on in your retirement.
  • Stay diversified. - Do not panic or react in the heat of the moment.
  • Keep some cash.
  • Consider Individual Retirement Accounts; they are subject to income levels, but withdrawals are tax free.
  • Consider Roth IRAs.
  • Consider Health Savings Accounts—you can stash pretax dollars into an account that grows tax free if you use the funds for medical expenses.
  • Give! Give to your church, educational institutions, charities, and your kids—you might get to itemize deductions and deduct those gifts, depending upon your income level.

Are you on track to retire early or on time? How well are you doing at these success factors?

  1. Are you saving for retirement outside of your work plan?
  2. Are you saving 10 percent or more annually for retirement?
  3. Did you start saving for retirement at age 25?
  4. Do you have a written plan for retirement?
  5. Are you involved in managing your retirement accounts?
  6. Are you saving consistently despite economic ups/downs?

If you could not answer yes to most of these questions, then you might not be able to retire early.  But if you want to retire before you turn 90, you had better get going now!  This might mean some radical financial changes, including a budget, getting out of debt, reducing expenses, and gaining additional income.

Retiring early sounds nice, but these six success factors are not easy, especially if you are not 25 anymore!  You might have to sacrifice some things to bump up your savings and get a new plan on paper.  Start now!

Money management is not about finding get-rich-quick schemes, getting into high-yield investments, or timing the market or finding magical formulas.  For most of us who are not in the financial investment business, it is more about the basics, such as spending less than you make, effective financial planning, setting achievable goals, and following through on plans to achieve your goals.  It is about information and action,  not about shortcuts and short-term miracles. 

Many tools to help you are available in A Lasting Legacy.


Future Foundation Builders
P.O. Box 3764
McKinney, TX  75069
E-Mail: doug@futurefoundationbuilders.com


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