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Are My Assets Diversified? 5 Easy Questions to Ask Yourself
January 10, 2007
My dear old departed Grandma, a lifelong farm wife, told me to be careful about putting all my eggs in one basket, but then again she raised chickens.How many of us put that saying into action with our investments?When it comes to diversifying your assets, that old adage is not only relevant – it can be the difference between financial success and failure for individuals and business owners alike.
In any profession, including the building trades and the chicken and egg business, diversification is important so that your portfolio will not be heavily impacted by one trend, event or setback.
Ask yourself these 5 simple questions see if you’re well diversified:
- Is most of my net worth in a single investment, like my house, stocks, or my business?
- Are most of my investments in one industry, like construction?
- Is my retirement plan invested in only one or two types of investments?
- Is all of my portfolio in stocks, bonds or in my business and none in cash?
- Am I holding more than 25% of my net worth in cash?
- Are all my assets in U.S. based businesses or markets or do I have international exposure?
If you answered yes to any of these questions, you may want to review your allocation.
The Value of Asset Allocation and Diversification
The best way to reduce the “systematic risk” of stocks (or any other asset class) is to spread your money among several classes – such as stocks, bonds and cash. If you are a business owner, your company counts as an asset class as well, because your industry might be sensitive to specific economic changes.
Vitus Bering, a Partner and CFO of SVPA Architects in Des Moines, Iowa (www.svpa-architects.com.) says, “Because I have a significant investment in a business that is reliant on the construction economy, I try to diversify my other assets in unrelated markets.”
Reducing systematic risk can be accomplished through a disciplined program of asset allocation, which sets guidelines for each asset class based on the individual investor’s return objectives and risk tolerance, according to The Guardian Life Insurance Company site, www.guardianlife.com.
The next step is to diversify effectively within each asset class, such as stocks, bonds and cash, and avoid too much or too little concentration in one area.
Bering, of SVPA, says, “If you’re in a construction related business, it’s tempting to invest in other building and construction deals that you see, but it is important to not to get too heavily allocated into your own industry.”
My Grandma was right:Don’t put all your eggs in one basket, and if possible, get more than one basket, too.
Suzanna de Baca is President of Private Capital Solutions Group, a financial and investment firm in Des Moines, Iowa. She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667. Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.
PAS is a member NASD, SIPC.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.
Posted by Suzanna de Baca on January 10, 2007 | Comments (0)
