Making the most of your money often comes down to not exposing yourself to too much risk.
But we have to remember that there are many types of risk in this world and being too aggressive with your investments is just one of them.
For example, most people consider a savings account to be risk free because it won’t go down in value.
But if someone had all their money in a savings account then they would be exposed to the massive risk that inflation will kill their standard of living over time.
The key is to manage all the different risks to get the most out of your money over the long term.
This week’s article is about a mistake that I see all the time that puts many retirements at risk.
Too Many Eggs, Not Enough Baskets
A big mistake that I see all the time is when retirees (and pre-retirees) have too much of their money in one thing.
For example, when you put too much money into a single stock or company that you like. I see this all the time with stocks like Amazon, Apple, Tesla, and other major companies.
And while most of these big companies are incredible companies it doesn’t always mean that they are a fit for a large percentage of your retirement nest egg because in other words, you are putting too many eggs in one basket.
Because when it comes down to it, no matter how well a single company is doing today it doesn’t mean that they will continue to perform into the future. It is not uncommon for giant companies to become obsolete from a change in technology, regulation, or consumer preference.
This is why it is so important to diversify our investments into lots of different companies to lower the risk of any one company doing badly.
What About Diversified Funds?
And the good news is that many funds like index funds and ETFs have diversification built in because they invest in hundreds or thousands of different companies or bonds.
But even within funds it is not uncommon for someone to put all their money into a single fund that they like or that has done well in the recent past. However, In most cases it often makes more sense to invest in multiple funds to spread your money over different asset classes. This way you lower the risk of one fund doing poorly doing compared to the others.
But again, there is no perfect allocation for everyone. It just comes down to finding a balanced approach that will help you have a confident and comfortable retirement.