Diversifying Your Investments – Now vs. 1990s and Early 2000s
I’m no investments expert, but I have never lost money investing in my entire life. To qualify that statement more specifically, I have never had a negative return on my total investment portfolio in any given calendar year. There have been years in my past where I didn’t invest anything since I didn’t have any money, but every year I’ve invested in something, I’ve always made money that year.
Granted, sometimes I’ve only made as low as 2%, but making 2% is better than losing money. One could argue that making 2% is losing money, since it’s lower than inflation. This is technically true, but it’s still not losing money in the hard mathematical sense. Fortunately, my 2% years are few and far between.
I make sure of this every year, because throughout my life I’ve followed what I was taught by Brian Tracy, which was taught to him by Warren Buffett. That is, rule number one of investing: “Don’t lose money.” Rule number two is to refer to rule number one. So I don’t lose money. Very simple.
Or at least, this used to be simple.
Historically, I have never diversified and never even worried about it. I followed one of Warren Buffett’s other rules, “Put all your eggs in one basket, and watch that basket.” I would study economic conditions and trends, and invest all my money in that one thing that looked like it would explode in value a little later.
This worked great for about 15 years.
During the 1990s, I could see the real estate boom, so I invested 100% in real estate and nothing else. I completely ignored stocks, which were also booming at the time, because I could tell stocks were a bubble (as they usually are in our post-corporatist era).
People I knew made fun of me for not investing in stocks. Didn’t matter. As a young man in his 20s, I made so much money in real estate during the 90s (and early 2000s), that there were some years when I made as much money in my real estate investments as I made at my full-time job for the entire year.
As the 90s ended, stocks crashed, as I expected they would. I knew guys who lost $300,000 in their retirements in less than three months. I knew one guy who almost killed himself. I knew stocks were a risky bubble, and I was right. My real estate profits continued.
As the 2000s rolled on, I could see that now real estate was becoming a bubble. Damn!
So I reluctantly got out of real estate and put 100% of my money in gold. The rampant overspending of the “small government conservative” George W. Bush convinced me, among other factors, that gold was going to do very well no matter what else might happen. Once again, people who knew me thought I was being crazy, or at least a little weird. Gold? Gold was a terrible investment! It was all about real estate baby!
Once again, I was right. As I talked about in my book, I made so much money in my gold investments that they funded my entire divorce (moving out, maintaining a second home, all the legal fees, etc). Then 2008 came along, real estate collapsed, and everyone lost their asses. I was already out of real estate by then, so I lost nothing. My gold profits continued (though not as strongly as before).
Shortly after all this, I had a feeling that gold’s heyday was over, so I looked for the next “one thing” that I could put all of my money into.
I couldn’t find it.
I looked and looked, I read and researched, but I couldn’t find anything like real estate in the 90s or gold in the 2000s that would look like it would take off. Everything either sucked or was just “okay.”
That was several years ago. Now, here we are in the late 2010s, and still I don’t see anything good. Every investment sector kinda sucks, at least a little.
– Stocks are in a bubble again. The Dow just crossed over 20,000 yesterday, a historic event. The Nasdaq and S&P are also at historic highs. All these numbers are bullshit and over-inflated, and will correct (i.e. crash) at some point in the next 2-3 years at the most, unless something very weird happens.
– Bonds are also in a bubble, particularly government bonds, even more so than stocks, thanks to artificial zero (or negative) interest rates.
– Real Estate in most parts of the Western world is also in a bubble, though admittedly not as bad as stocks or bonds, and exceptions can be found. Regardless, it’s not anywhere near the slam dunk it was in the 90s.
– Currencies are complicated. Governments all over the world are devaluing all of their currencies on purpose, via overprinting, to stave off recessions. Deals can be found if you devote several hours a day to watching international currencies, but I don’t have that kind of time. Cryptocurrencies like Bitcoin are exciting and promising, but not a slam dunk.
– Precious metals are going to do well in the long-term, but still a little risky in the short and perhaps medium-term because of people’s silly tendency to flock to the US dollar whenever catastrophe strikes. A strong dollar usually means weaker precious metals (though not always).
– Commodities are going to probably do well long-term, but there’s no guaranteeing that, since a new technology could be invented at any time that can instantly kill their value. (How much will oil be worth if/when someone invents a little, inexpensive battery that can power your car or aircraft forever?)
– Emerging markets, particularly SE Asia, are going to do well in the long run, but they’re still not the slam dunk real estate was in the 90s or gold was in the 2000s.
So here we are, living a slowly collapsing civilization where there are no slam dunks anymore, at least none that I can see.
Faced with this problem, I did the only other thing available to me to ensure I don’t lose money; I diversified the hell out of my investments. Since I don’t know what will be good (other than a few hunches), I’ve spread my money out all over the place to minimize my losses if anything bad happens.
Today, I am so diversified that it’s kind of ridiculous. The other day I was looking at my investment spreadsheets and just shaking my head. This was so much simpler (and more fun) during the 90s and 2000s when I could just focus on one thing. Oh well. Those days are gone.
I can’t tell you exactly where and how I’m invested, because I don’t give out personal financial information over the internet (and neither should you). I can tell you that I’m invested, in some way, in every sector I listed above, all of which in a very diversified way, in addition to some other sub-sectors I haven’t mentioned.
That is my laymen’s advice to you. Since no one can tell with any certainly what the next big “one thing” is, if you have money to invest, diversify the shit out of it. Kevin O’Leary’s rule is that you shouldn’t have any more than 5% of your money in any one investment or one sector. If you do the math on that, that means you’re invested into at least 20 different sectors. Yikes. I’m not quite that diversified, but close.
It’s a pain in the ass, but it’s what I think is necessary in order to protect your money in these uncertain times. In several decades, once the West gets through the pain that is coming, maybe you’ll be able to bank on that “one thing” again. But until then, I think you should be as safe and diversified as possible.
Note: I am not a financial expert and I’m not qualified to give investment advice. Please consult with a trained financial professional before investing any large amounts of money.