A Case for Diversification

Wow! What a wild stock market we’ve had the last few days. Over a trillion dollars in lost value. Can you imagine having virtually all your asset held in stocks? I was asked the other night at a party, by a person that apparently was hurt pretty badly by this, how much money this huge sell off of stocks cost me. I answered that it had virtually no impact on my assets and or net worth. How is this possible? Well, it’s simple … I own just one small position in one publicly traded stock. Maybe in the long run the market drop will have an effect on real estate property values–that’s where I have almost all my net worth– but I very much doubt it.

Yes, I used to be a stock broker many, many years ago and would buy and sell stock for myself frequently, but I learned the hard way that even very smart people can lose money very quickly in the stock market. Even if you buy great stocks and those companies are making money and doing well, if the overall market takes a big hit like it has done the last few days, your good strong company stock usually goes down with the market. One of the big reasons I moved almost all my assets into improved, rent generating real estate is because I had a least some control over the asset that I owned. You see, with stocks, you not only don’t control the company or the people that are running the company, but you have no control over what the overall stock market is doing.

You may be thinking, “Okay, I agree with all that but putting my money in improved real estate takes a lot of work and effort.” And you would be correct. It does take work but the rewards can be so great and much of the work can be turned over to others. I’ve certainly found that to be true and the huge surprise and benefit to me was that I found people that do a better job finding, fixing and managing the properties than I do, or I should say “did”. I’m a big time delegator now.

At a minimum, I would encourage you and anyone that will listen to not put all your eggs in that one ‘stock basket’. Diversity is the smart thing to do and, yes, even though I own very little stock, I do make sure I diversify my asset by owning different kinds of real estate. I own everything from triple net lease buildings with national company tenants to development of storage units to small retail strip malls and even a bit of raw land. A bit of cash always being set aside is a good idea too.

I encourage you to take time to plan out your asset strategy. Don’t be like the majority of Americans who seem to spend a lot more time planning their vacation that they do planning the financial life!