Diversify personal assets
Will you Survive a financial meltdown? we’ve all heard the stories of families whose entire life savings were wiped in the great depression as bank after bank collapsed. And now we don’t need to look to the great depression as we expect a great financial meltdown within the next couple of years. One of the methods that you could use to protect your assets is to diversify your assets.
Why should you diversify your portfolio
We have all heard the story of the little boy on the way to the market who put all his eggs into the same basket. The little fellow unfortunately had a fall and landed on his basket full of eggs. The morale of the story is of course you don’t put all your eggs into the same basket. So why do so many people put all their money into a single investment. Some of them may be ignorant or being misled but others are looking for the highest return. Greed in some cases can lead to disaster.
How to diversify your portfolio
You first need to select a number of viable investment – such as treasury bills, stock market, mutual funds, gold etc and decide on a mix. Your liquidity needs and target ROI will determine the type of mix that you will undertake.
How to measure ROI
How do you measure the ROI of your portfolio – it isn’t difficult just take the profit that you earn from each investment and divide it by the average value of that investment. Then you need to apply weights to each investment in your portfolio depending on its importance or weight given in your total portfolio – that can be done by multiplying the ROI by average investment divided by total portfolio value. Then the weighted ROI’s needs to be added together to get the portfolio ROI
When should you sell
Deciding when to exit an investment isn’t easy – its very easy to lose out and most people do as they wait for the best price – prices fall and as you sell prices rise – so there is never a sure formula to decide when to sell – so long as you achieve your target return that you wanted from an investment at the beginning you should exit or if macro conditions have changed you should take new factors such as interest rate and inflation into consideration.
Conclusion and Action Plan
Decide how you want to carve up your portfolio or diversify personal assets and where you want to invest your money – do some research first and prepare a spreadsheet and target a reasonable ROI for the first year and then become more ambitious.