From Retirement Now Newsletter 4-7-2022
I was reading the other day and came across a little factoid that said Chris Rock tickets had gone up to a thousand bucks. This being much higher than they normally would be. But the reason they are higher is because he got slapped in the face by Will Smith at the Oscars.
The slap heard round the world has at least temporarily increased Rock’s stock value it would seem.
Just like Elon Musk’s purchase, and now 10% stake in Twitter, has bumped up Twitter’s stock price.
And the common thread between these are they are random news-driven events that were totally unpredictable.
Nobody, and I mean nobody, was hoarding up Chris Rock tickets the day before the Oscars because they knew he was going to get slapped, causing the price of those tickets to go through the roof.
If you had a crystal ball or could call up Miss Cleo to get this prediction, you could’ve made a tidy little profit in the short-term.
But we know that’s not possible.
And anyways, Miss Cleo wouldn’t tell if she knew. She’d keep the profits herself.
But when it comes to investing people try and guess what the market is going to do in the short-term. Essentially that’s like trying to predict what tomorrow’s news will be.
And the results can be very bad. And for retirees ‘very bad’ is not good considering they often rely on their investments to cover their expenses.
I prefer the much more boring approach of diversification and rebalancing when the allocations get a little out of whack.
I came across a good article on the importance of diversification the other day I thought I’d share with you: What’s So Great About Diversification? From Kiplinger.
It breaks out some of the most common investment classes to put into a diversified portfolio.
Definitely pay attention, especially if you are retiring soon and are trying to figure out how to invest your 401k once you leave your employer. This is your retirement on the line here and you don’t want to put too many of your eggs in one basket unawares that you aren’t diversified.
-Cash and equivalents: They provide liquidity but are prone to not keeping up with inflation. Good to have but may not too much.
-Bonds: Multiple types of bonds, from corporate bonds, junk bonds, U.S. treasury bonds, to foreign bonds. Each can perform differently based on what is going on in the markets and world.
-U.S. Equities: These are stocks in American businesses. They can be further broken down into large, mid, or small companies, as well as categorized based on growth or value.
-Commodities: Things like gold, soybeans, or livestock.
-Real Estate: This is real deal property. It can be broken down various ways as well “from commercial and residential properties to mining, timber and farmland.”
-Global Markets: Non-U.S. equities. These can also be broken down into categories like large, mid, small, growth or value. They offer an additional layer of diversification to a portfolio, because if your U.S. stocks are in a slump maybe the global equities will be doing better.
-Global Bonds: Same as U.S. bonds except in the international market.
Harry Markowitz said that diversification is the only free lunch in investing. And he’s right.
But at the same time doing it the right way can be a challenge with trying to figure out how much of each asset class to include in your portfolio. Making sure that if you are taking regular withdrawals from your portfolio that you are not investing so aggressively that the portfolio could take drastic swings in bear markets all the while you are pushing it down further with your withdrawals.
Or just simply the second-guessing that all investors experience and how to overcome that and stay on the right path and not make any bad moves out of fear or greed.
I’ve even talked with people that are a little embarrassed by some of their past investing choices but realized they needed help with a plan in place to turn their investing strategy around.
How many more people are like that, need help, but are too embarrassed to talk with someone about it?
All of these things can be hard. But you’re not alone if you’ve ever worried about these things.