#110 - What You’d Better Understand About Diversification and Indexes
Welcome once again to another episode of the Retirement Answer Man podcast. I recognize that time is your most valuable commodity, and I don't take it lightly that you are spending a significant portion of it listening to this podcast. Thank you! Thank you for the trust and confidence you are expressing in me by listening to what I have to say about retirement planning and finances. On this episode we're going to take a deep dive into the issue of diversification to help you understand how the practice is beneficial at some points in history and not so beneficial in others.
[bctt tweet="What you’d better understand about #diversification and indexes, on this episode"]
The political scene is heating up. What impact does it have on the economy?
It is March of 2016 and it looks like we are headed towards some certainty regarding the political candidates for this election year. If things continue to go as they seem, we're going to have some very interesting choices to make. When I'm getting too political, let me just say that the economic choices in this election are very clear-cut. Should we subscribe to the “lifting up” philosophy of economics or the “leveling down” view? On this episode I'm going to give you my thoughts about both of these.
You can’t play catch up in the most important areas of life.
A book I've been reading recently has reminded me of a very practical and helpful truth that impacts the way we look at retirement planning and investments. The lesson is this: you can't play catch-up in the most important areas of life. This means wise planning ahead of time is the best course of action in many of the most important things we care about. On this episode I'm going to chat briefly about what that means to me, especially in the realm of retirement planning.
[bctt tweet="You can’t play catch up in the most important areas of life, including #RetirementPlanning"]
Transparent conversations and the road to happiness.
One of the reasons I do my podcast is to encourage you to think about the level of happiness in your life. Retirement planning is not just about money, it's also about having a great quality of life during those retirement years. One of the things that enables you to have a happy retirement is to have happy relationships. Transparent conversations are part of building those kinds of relationships, and in this episode I share a quick story with you about how my transparency got me into trouble, but then led to a very valuable and important conversation.
Is diversification really all it’s cracked up to be?
For many years the concept of diversification has been one of the founding principles upon which retirement planning and investment strategies have been built. There is a reason for that. It makes sense to have your investments spread out over many different markets and niches, that way you can endure the ups and downs of the market that may come to one particular area but not to others. But lately there have been a lot of questions about whether or not diversification is really such a great idea. On this episode we're going indepth to look at the concept of diversification, how it is connected to the various indexes, and what you should be thinking in terms of your retirement planning.
[bctt tweet="Do you understand the concept of #diversification in your #InvestmentPortfolio ?"]
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN
- [0:24] My welcome to this episode of The Retirement Answer man
- [0:53] A deep look at a foundational concept this week.
HOT TOPIC SEGMEN
- [2:24] The political scene and how it impacts the financial and economic scene.
- [4:19] Should we follow the “lifting up” strategy or the “leveling down” strategy?
PRACTICAL PLANNING SEGMENT
- [5:19] The fact that you can’t play “catch up” on the most important areas of your life.
- [7:00] The reality of cumulative impact on these kinds of issues.
THE “BE HAPPY” SEGMENT
- [9:33] How my transparency got me into trouble, but also brought about a good thing.
- [11:56] What conversations do you need to have to set the stage for happiness and harmony?
WHAT DOES THAT MEAN? SEGMENT
- [12:04] What is diversification and why is it important?
- [13:30] How diversification addresses risk.
- [14:20] Does passively following the S&P 500 diversify your investments enough?
- [16:20] Examples from the 1990s and the 2000s.
- [17:40] How diversifying into world economies could be an even riskier approach.
- [20:00] Why people are questioning the practice of asset diversification.
- [22:59] Lessons we can learn from what we are seeing in diversification.
TODAY’S SMART SPRINT SEGMENT
- [26:38] Do your own “Instant Xray” on www.MorningStar.com
RESOURCES MENTIONED IN THIS EPISODE
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
3-video Series: 5 Minute Retirement Makeover
Roger’s Retirement Learning Center
The Retirement Answer Man Facebook Page
BOOK: Ask It by Andy Stanley
www.MorningStart.com - do your own Instant Xray
TWEETS YOU CAN USE TO SPREAD THE WORD
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