When you consider your personal finance strategy, it is always a good idea to keep diversity in mind. You may have heard the term “diversified investments” before without really giving it any thought, but in fact adhering to a strategy of diversity can be extremely financially beneficial. The basic concept is that if you spread out your investments in different markets – or different types of investments entirely – it is more likely that one of these markets or methods will succeed. Additionally, you are less likely to be severely impacted if a single investment should go poorly for you.
If the concept of diversified investments were not enough to prove itself useful, the now legendary stock market crash of 2008 did plenty. In October 2008 the stock market experienced a nearly unprecedented setback, with the Dow dropping roughly 22% in just over a week. Needless to say, people with a great deal of money wrapped up in ordinary stocks and bonds lost a great portion of their assets during this crash, and for many the misfortune was impossible to recover from. The fact is, when a crash of this magnitude hits the market, very few individual companies or industries escape losses, which means a portfolio filled with various stock investments almost certainly would have taken a hit. Granted, such crashes are exceedingly rare, but they do a great job of illustrating the vulnerability of a personal finance portfolio that lacks diversity.
On the other hand, a more diverse portfolio has at least the capability to make it through a financial collapse with relatively little consequence. Consider, for example, the popular alternative investment concept of purchasing gold bullion. Rather than buying “gold stock” in an ordinary market (although you can trade gold ETFs and gold mining company stock), the purchase of gold bullion occurs instead at gold buying websites such as Bullion Vault. At these sites you can buy and sell any amount of gold at any time, and withdraw or store it securely at your leisure. This allows you to operate an entire investment completely outside of the ordinary stock markets.
Additionally, the rise and fall of gold prices should generally occur with some degree of independence from stock markets, which means that your investment will not be subjected to the same trends. In fact, it is often true that gold prices operate inversely to major world currencies – which may mean that if a stock market crash causes the value of the dollar and/or euro to fall, the price of gold will rise as investors buy up gold to protect their assets. This is not to suggest that you should move all of your investment money into gold – however, it is a perfect example for demonstrating the potential positive impact of a diversified investment portfolio.
