When you put all your money in one investment account you take the great risk of losing all of it if the investment loses all its value, or the holder thereof goes bankrupt and did not put your money in a segmented account, or if you unknowingly invest with a scam artist running a ponzi scheme.
These types of things do happen from time to time and they happen in good and bad economic cycles. The principle of diversifying your assets helps protect your asset base from massive and total loss when such things occur. Even though your assets might not earn as much as one particular investment could have earned during a certain period of time, the upside is that you don’t have to worry about one bad apple spoiling the whole bunch nor all eggs being broken if you happen to drop the basket.
It has been noted that reasonable asset allocation and diversification have overtime reduced the risk of loss on investment portfolios while at the same time allowing very good growth during long-term investment horizons (five consecutive years or more). Therefore, you should seriously consider spreading your assets commensurately among different types of investments (no load stock and bond index mutual funds, real estate investment trusts, stable value funds, investment real estate, etc.) in order to obtain both benefits.
Once you save six months of gross pay in an emergency account, seven different investment accounts is a good scriptural number of different accounts you want to have for financial safety and stability throughout the various economic cycles you will encounter in life. Such investment accounts should be with licensed brokers and brokerage houses (Vanguard, Fidelity, T-Rowe Price, TIAA-CREF, etc.) that are in good standing with state and federal securities regulatory agencies.
You may want to fund each instrument equally or divide your investment up so you put in stock mutual funds or equity based investments a percentage that represents your age minus 100. You would then put a percentage representing your age in bond mutual funds or non-equity based investments.
No matter your age, if you are in a position in which you are uneducated about investment vehicles or you need to immediately live off all the money you have saved or you cannot mentally tolerate the risk of losing any portion of the amount you would invest then you should put the vast majority of your money in federal government guaranteed fixed income investments or retirement plan stable value investments.
Do this until you educate yourself about the different types of investments and you are comfortable that you can invest your money with a long-term investment horizon without buying investments at high prices when economic times are good and selling them at lower prices when times are bad. You invite scam artists and irresponsible investment behavior into your life and finances when you try to get high rates of return while not understanding the things you investment in and not knowing how to pick reputable brokers and financial advisors to help manage your money.
Again, the principle of diversification provides greater safety from total loss while rewarding you over the long term with a very reasonable opportunity for meaningful growth of your investments.
Please pray for this ministry and email any questions. May God bless you richly as you follow His plan!!!
Genesis 13:2, Job 42:12, Proverbs 15:22, Proverbs 24:6, Ecclesiastes 11:1-2
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You can find books authored by Randy and Karen Parlor at www.Amazon.com.
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