Monday, February 23, 2009

Moving My Eggs Around

Since my previous post on diversification, I have remained committed to finding ways to diversify my savings. Having all of my wealth in the stock market no longer makes sense to me for several reasons ... (1) I'm not truly diversified, (2) while I'm not freakin out about the current downward spiral of the market, I am paying closer attention to how my investments are structured and (3) I do not want my long term savings to be solely based on speculative investments.

Investopedia defines diversification as a risk management technique that mixes a variety of investments within a portfolio. The idea here is to reduce your exposure to risk because investments are unlikely to move in the same direction at the same time. When one investment is down, the other investment should be up or at least stable. Needless to say, we are currently in unprecedented times when everything, stocks, bonds and real estate are all moving in the same direction, down! So can I really achieve diversification? Yes, I think so. Here are a few investment ideas that I plan on adding to my portofolio, in addition to paper investments (i.e. stocks & bonds):
  • Pay of my mortgage! Yes, this is already a goal but I have taken steps to increase the amount I'm sending each month as extra principal payments. The way I see it, a paid off mortgage will fit in quite nicely with my long term savings plan. Unless I have some life changing circumstances, I am in my house for the foreseeable future so why not expedite the payoff. Certainly we all know the benefits of not having a mortgage.
  • Small Business - I have an investment in a small business and it's actually in the black! I will continue to monitor the business and maintain my investments as long as it's a viable option. One of my long-term goals is to invest in more small businesses. Perhaps I'll post more about this later because this goal gets me pretty hype!
  • Rental Real Estate - At some point I plan to include rental real estate in my portfolio. I have no plans on taking the plunge until I have enough cash to make a hefty down payment. Actually I would prefer multi-units or commercial properties. I have little to no interest in managing single family homes.

Now that I have specific investments identified, I am feeling better about being diversified. Am I risk adverse, absolutely not, I just don't want all of my eggs in one basket. Aah, it feels good to have a plan ;-).


Sharon Rose said...

Hi there-good for you my dear!! Paying the mortgage down is an excellent way to go, good luck!

Shtinkykat said...

I'm glad to read your savings plan includes paying off your mortgage early. It peeves me to no end when I hear someone say, "I have no intention of paying off my mortgage ever because I want the tax deduction." Your small business investment sounds interesting. Looking forward to reading more about it.

Shtinkykat said...

MMC: I'll respond to your question on my post here, while we're on the topic of diversification. I actually have 6 (!) savings accounts. I only report about the 3 online ones since the other 3 are bricks-and-mortar banks that offer virtually nothing on interest.
Although I don't earn much interest at BAM banks, I keep those accounts open with minimal balances for easy access just in case. (One of drawbacks of online banks is that it takes about 2-3 business days to access the money.)
I ended up with numerous online savings account because I rate chased from ING to Citi USA to DollarSavingsDirect. The good part of CitiUSA, though, is that I get the benefit of the online rates yet I can access the money at its BAM branch offices. Too bad it's on the brink of collapse, though.
And I also think that it's worthwhile to diversify my banks since, as you mentioned, I don't trust that any one of them are truly 100% solvent. Although they may be insured by FDIC, if any one of them collapse, I want to make sure I have other pockets of money that I can still access without waiting for the FDIC money.

Money Funk said...

So, Shtinkykat rate chases, huh? lol! I just happened to get a loan offer from Chase (see the devil horns, yet?!).

MMC, sorry I have been someone silent. I am just terribly unindated here at work. And it ensures my job security. ;)

I was just thinking about diversification. My stocks are well diversified. And I still need to buy my own house. And would like to invest in realty, too. Probably will own rental property before I buy my own house. lol!

Side note: I was just looking up my stocks and see this message about President Bush's signature on defer required minimum distributions in 2009. Must be old cuz he isn't our pres any more. Well, its an interesting read I wasn't aware about.

Great post! I myself will post real soon. :)

Money Funk said...

Oh ya, meant to say that this post makes me realize I need to take the time to ensure that my savings (I have savings?) are where they need to be. Also, it reminds me that I need to increase my savings for a long ahead retirement and/if any medical issues ever came up.