The last 3-4 months have been a perfect example of why diversification within your financial life is so important. The stock market has essentially decreased 10-20% which has wiped out many of the gain’s investors have achieved over the past 2 years. While this is horrible, it is not the end of the world as long as you have remained diversified, which increases your financial redundancy. The markets will go back up, they always do. But for those that have not diversified, they may never rebound from the loss…
I know some investors who have been going “all in” on just a handful of investments, most notably tech stocks and cryptocurrency. These people have gotten absolutely slaughtered over the past 3 months, and I fear many of them will never get their money back. This is what happens when you don’t diversify.
A diversified investment portfolio should include investments within 4 categories at a minimum. And within those categories, you should be diversified further. Here is an example on my investment diversification by category:
Stocks and bonds: I invest heavily into stocks and bonds. I would estimate that 30-40% of my net worth is in the market. But I am well diversified. I do not invest more than 10% of my portfolio into individual stocks, instead I invest in index funds. I am invested in 7 solid index funds that not only grow, but they pay me dividends that are around 4% a year. Yes, I not only grow the investment itself, but it pays me 4% a year. That is pretty solid and more than you will ever make compared to money sitting in a bank. Look at it as another cash flowing asset. For those that are interested, my portfolio consists of these funds: VTV, VTI, VXUS, VDE, MUB, TIP, and BDJ. This is a solid mix of stocks and bonds. While everyone else is freaking out, I am only down about 5% this year. Big whoop… It will go back up.
Real estate: I also like to invest in real estate. It is a hedge against inflation. My goal is to purchase at least 2 properties a year. This year, my goal is 5 just because of how rampant inflation is and I am looking for CASH FLOWING passive income streams. The key with real estate is to ensure you purchase properties that will appreciate in value and provide monthly cash flow. Additionally, do not invest in one area. Remember, DIVERSIFY! I invest all over the country. Long distance investing does not scare me. I am okay with a video tour from a realtor and an inspection report. So far it has served me well. Plus, there are still great deals out there in certain markets… You just need to look!
Businesses: This one should be obvious. I have 4 businesses and continue to invest into them, so they can grow. It is a wise idea to invest your money back into your business if you seek financial freedom. There is no other way to accelerate your wealth in a meaningful way like you can through a business. There is no way I would be where I am at without my businesses. If you don’t have one, START ONE. If you have one, ensure you are investing money back into it so it can begin working for you, which will set you free.
Life insurance: Yes! Life insurance can be an investment as well. There are certain policies where you can invest a set amount yearly into it for a set term like 5-10 years. After that term, the money grows in the policy based off the market and after another set term (typically 5-10 years), you can begin drawing a dividend payment (5% average) from it for the rest of your life and the set policy stays in effect to pay your family once you pass. It is great, PLUS it is protected from lawsuits. So, it can be part of an asset protection strategy as well. If you can invest $500,000 into this over 10 years, then you can withdraw $20,000 a year from it for life. Add this on top of other passive income streams and you could be sitting pretty when you retire.
Alternatives: Alternative investments are items such as gold, collectables, guns, art, etc… I collect Indian artifacts, purchase gold from time to time, and have a healthy assortment of guns. While these are mostly for enjoyment and hobby, they are actually an investment as well. Many alternative investments appreciate in value over time, so if you were ever in a position where you needed money, you could sell these assets for a profit. Do not put more than 10% of your net worth into these items though. It is like the idiots that dumped all their money into Beanie Babies… It is not a smart move.
Debt payoff: Debt is slavery. The more debt you are in, the more of a slave you are to it. You are FORCED to work at a job you hate just so you can pay your debt payments. A diversified portfolio should include paying down debt or getting out of it entirely. Minus some mortgages on real estate, I am totally debt free. It took many years to get there though, but with a solid debt paydown plan, you can get there to. It is a reason why it is a principle in The Elite Nurse Practitioner Model. You can never be free and be in debt.
These are my investments and my strategies. Everyone will be different based off your individual circumstances and your time horizon for financial independence and early retirement. The important thing here though is to be DIVERSIFIED. Never put all your eggs in one basket. Never invest all your money into one asset class. That is a recipe for financial ruin because bad things HAPPEN. You need to expect it. Those that are diversified can ride out the storm, those that aren’t will be scrambling. Therefore, if you truly want to be one of the Elite Nurse Practitioners, you need to have a diversified investment portfolio! Don’t rely on just your 401k and your “steady job” …