“Yeah, like Bizarro Superman, Superman’s exact opposite, who lives in the backwards Bizarro world. Up is down, down is up, he says hello when he leaves, goodbye when he arrives.”
-Jerry Seinfeld from “Seinfeld”
Recently I was telling my beagle to do something. I can’t remember if it was get in the crate or me trying to get him to come to me to put his leash back on after letting him run around and explore the river bank.
Doesn’t matter because the result is always the same…
Try getting an untrained dog to come to you by calling for him. Ain’t gonna work.
Try leaving the location that you’re at acting like you don’t want him to come with you. Next thing you know he’s coming to you, ready to go with you, afraid of being left out. At least that’s how my beagle is.
And people are the same way.
Try passionately convincing someone to take a course of action or to believe in something you believe in. What’s their response? 9 times out of 10 they will dig in their heels and give every reason under the sun why they shouldn’t follow your advice. Why?
The world works opposite from what you expect.
In practice what is the hardest thing to do with investing? Buying when everyone else is selling.
What’s the next hardest thing? Taking some defensive measures when the market is in a bubble.
Diversification gets this principle.
Diversification is a way to help reduce risk in a portfolio. And by mixing in different asset classes and money management styles, by nature some will perform less than others in any given period.
In an equity bull market, the non-equity investments will underperform. There may even be some holdings inside a portfolio that will go down in value.
Logic would tell us you want everything in a portfolio to always go up. You wouldn’t want any holdings in your portfolio to go down, right?
If this were possible then sure you’d want everything to always go up. But Warren Buffet can’t even do that and he’s arguably the world’s greatest investor ever.
The reality is there will be ups and downs to any asset class and any investing style. And no investor can avoid that.
Which means if everything in your portfolio goes up together, that means it will probably be going down together when the market has a correction.
So looking at the world in an opposite fashion, it means it’s not necessarily bad to have some holdings in your portfolio that go down from time to time. It means they are probably not strongly correlated with the investments that are going up.
So when the currently strong performing investments in your portfolio have a reversal and go down due to a market correction, maybe those current underperformers will offer your portfolio some stability to help preserve the value of your portfolio.
Such is most important, especially when you are nearing retirement or in retirement.
It’s even more important when you must make withdrawals from a portfolio to supplement what Social Security is not enough to cover.
That’s just one example of the world working opposite from what you’d expect.
And you can apply the rule of opposite to your own life. Instead of trying to convince your friend of something, next time tell them they probably won’t like what you’re about to say and probably wouldn’t want to believe it anyway.
See what happens.
Anyway, if you want help putting a real plan together that helps you generate the income you need in retirement and invest in a smarter way, then click below, input your information and I’ll give you a call to see if I could possibly help you.
Actually, you probably shouldn’t click the link because you probably wouldn’t like it anyway.