Imagine that the Joker is on the loose in Gotham City. He’s doing his normal Joker thing: robbing banks and breaking things, and he has Joker-dressed goons running all over the city.
Not only that, but let’s say that the Riddler is also wreaking havoc. There’s only one hero that can save the day, right? Batman!
Na na na na na na BATMAAAN!
Here’s the problem though: that’s a lot for Batman to deal with at once. Having Batman go alone is a pretty big risk. The same can be said about putting all your money into one investment.
And why would he go alone if he could also get help from Superman, the Flash, Green Lantern, Wonder Woman, Aquaman, Green Arrow, and the rest of the Justice League? What if the Batmobile is temporarily out of service, or some of his gadgets are broken?
The point is: we could either have a very, very busy Batman fighting on his own, who might not even win (unbelievable, I know), or we could be pretty confident that he and the rest of the Justice League together would come out on top.
It’s a lot less risk to have the whole Justice League fighting instead of just Batman, like investing in a 401K, Roth IRA and other funds.
Invest in the Justice League
The same can apply to financial planning. Investing in just one thing puts you and your money in a pretty risky situation.
You have probably heard the phrase, “Don’t put all your eggs in one basket,” which is a principle that can apply to investing as well. Sure, if that investment does well, you’ll benefit from it. But if something happens and that investment goes down, it’s not a pretty picture.
That’s why it’s a good idea to diversify: put your money in several different investments instead of just one.
Diversification allows positive performance from some investments to counteract negative performance from others.
Diversification doesn’t guarantee a benefit, or that you won’t have any losses: it is simply meant to lower the risk of losing all your money if one of your investments has a bad year.
If you invest in 20 different stocks and one goes down the tubes, you still have a good chance that one of the other 19 will go up, at least enough to soften the blow.
While diversification doesn’t prevent you from losing money, it can reduce risk and give you a better chance at keeping your portfolio steady, if not positive, in the long run.
Not Everyone is as Rich as Bruce Wayne
A common challenge some people encounter when trying to diversify their portfolios is that they have limited budgets to invest with. That’s fine!
There are plenty of ways to diversify even if you don’t have a whole lot to put away. You just have to be aware of your options and how to work with what you’ve got.
Do the Good Guys Always Win?
In comic books, the good guys always win. Batman will probably find a way to get rid of the Joker and the Riddler like he always does, with or without the Justice League.
In the end, order is restored, and all is well in Gotham City. However, that is not at all a guarantee when it comes to investing. You could be at greater risk if you rely on just one investment. We address this idea in our video When to Avoid when a Bad thing goes Wrong. So think about diversifying when faced with 401K, Roth IRA, or other fund options.
Why try to rely on Batman alone when you can have the whole Justice League? Our team of financial advisors is here to answer your questions and help you put a plan into place.
Give us a call or contact us for a free consultation.
At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.
Investing involves risks and there is no guarantee that any particular strategy will work under all market conditions or protect against loss in a declining market. Diversification and asset allocation may reduce some risks of investing, but do not guarantee a profit or ensure against a loss in a declining market, they are methods used to manage risk.