The Crotchety Old Men Podcast
Discussing the Craft of Financial Diversification for Stability
Uncover the secrets of savvy investing with our guest George, as we tackle the nuanced art of portfolio diversification. Say goodbye to the one-size-fits-all approach and hello to a strategic blueprint that aligns with your unique financial goals and risk appetite. Whether you're seeking a comfortable retirement, plotting your children's educational future, or taking your first steps on the investment ladder, this episode packs a punch with insights on spreading your financial seeds across various accounts and industries.
Uncover the secrets of savvy investing with our guest George, as we tackle the nuanced art of portfolio diversification. Say goodbye to the one-size-fits-all approach and hello to a strategic blueprint that aligns with your unique financial goals and risk appetite. Whether you're seeking a comfortable retirement, plotting your children's educational future, or taking your first steps on the investment ladder, this episode packs a punch with insights on spreading your financial seeds across various accounts and industries.
Well, hello again from another episode of the Crotchety Old man podcast. Hi, I'm Gary Smith, one of the co-hosts of the Crotchety Old man podcast, and joining me in the studio today is I call him my Imagineer, engineer Inspiration Near, george, probably. What's going on, george?
Speaker 2:Oh, smith, it's. Another beautiful day. How you doing.
Speaker 1:Hey man, I'm doing. Great thanks for asking.
Speaker 2:Good, good, good. So what we got on agenda for today?
Speaker 1:Well, you know, we often time try to bring as much information, inspiration and education as we possibly can to each and every episode. So, in totality, what we've been talking about, george, is diversification. So I thought we might take somewhat of a deep dive today, as much as possible, and to talk about what diversification is, what to do with it. You know when and how and you know all the nuts and bolts about. Hey, why diversification? Why diversify your portfolio?
Speaker 2:Excellent subject. Yeah, I mean excellent subject. You know, when I think of diversification, the first thing I think about is hey, don't put all your eggs in one basket. You know, I try to keep things pretty simple.
Speaker 1:Yeah, I didn't mean to just interrupt you like that, but you know, that's what we've been taught all the time. You know, don't put all your eggs in one basket when, in actuality, I believe we'll uncover this or discover this. Is that that may not necessarily be true all the time. Let's dig in, right.
Speaker 2:I mean yeah, I mean, yeah, it's it's. It's to avoid over concentration in one particular thing and in this particular situation we're talking about. You know your finances, you know so if you're an employee and you've got a 401k, you know you don't want to have just the 401k. You should diversify. You should have maybe an E-Trader account on your own, maybe a Charles Swab or you know one of these other and we're Jones. You know there's plenty of them out here.
Speaker 2:But you know, for me, sometimes it just comes down to a trust factor or not a trust, or an access factor. So what happens if I can't get access to this account, you know, can I get, you know, access to this other particular account? You know what, if this one's not doing well, maybe this one is doing well. So there's a lot of different reasons. You know why you want to diversify, but it's for access and it's like I said, you don't want to create over-concentration in one particular field. I mean, what are your thoughts?
Speaker 1:Well, my thoughts is that I believe you should go about diversification like you would by planning a trip. You need a plan, all right. Why are you investing in? Whatever the heck it is that you're investing in, I mean, be it a 401k, be it government bonds, be it stock, real estate, gold, silver, crypto? We can go on and on and on. So there's a lot of stuff out there, all right.
Speaker 1:And so to go and buy some of everything that's out there is not a wise utilization of the diversifying philosophy, if you will, because, in essence, what you're going to end up doing is diluting your opportunities to gain yield, and not only to mention that you know be able to, like we always say, it's not how much you make, but it's how much you, what you keep, and so you dilute that, and then, in addition I could go on and on then you're going to dilute your yield potential. So, rather than go about that way, think in terms of why are you diversifying? Why are you investing to begin with? All right, are you investing long term or short term goal, or what have you? Then?
Speaker 1:If that's the case, then your diversification module is going to be narrowed. And it should be narrowed because, as you learn more about your risk tolerance. Sure, most people go into diversifying out of fear rather than gain, trying not to lose. You rarely win a game, whether it's in a game of sports or in life or in business, for sure going into it with that type of mindset. So that's why I mentioned early on that diversification can be. It's like a gun it could be used creatively and good, or it could backfire and kill you in the business game.
Speaker 2:I mean, those are some very good points as far as why diversification could work against you. So you have to be careful in what you're doing. I guess I'll look at it more so as, like I said again, if you're investing in your 401k at work and you have a certain amount most employers will match up to what is about 8% you may want to invest a little bit more. So you have an option you can either invest in that 401k or, like I said, you can open up your own tool.
Speaker 2:Some of the times, your 401ks limit you on the number of options you have from a stock perspective. They want you to sometimes stay in particular classes of stocks that they represent, which their board has already approved, but you may want to get into something that's dependent, here again, on your risk tolerance. You may want to get in something a little bit more risky or you may want to get in something a little bit stable. So here again, it's going to be different for everybody. So you have to determine, like you said, key word is what's your risk tolerance and also what's your goal. Are you investing for income or are you investing for growth? I think those are two important things that people sometimes don't realize, because I know some people have come to me and said I got some money, what should I invest in? The first thing I say is so what's your goal? Not to say you can't have both, but then it depends which one you really want. That's where your concentration and focus is going to go.
Speaker 1:Absolutely. And to that end, how fast you want to grow, how much time do you have to grow? Because one thing will never change in SC time in harvest. So if you start your planting or sowing of seed late in the game, then you don't have a whole lot of time to accumulate. So now growth is going to be on one side, it's going to be a driver, but now going at that risk reduction of loss is going to probably be the one is going to drive you the most, and that's what puts you into a situation where you have to invest because of fear versus investment, because of that of gain.
Speaker 2:Yeah, absolutely, you know you hit. A good point is like where are you in this stage of investing? You know who could, who should consider, everybody should consider diversification. But it's different if I'm an individual investor. It's different if I'm a Retiree or getting ready to retire, you know. So you have to look at where you are in the stage of life. Are you, you know, to parents? You know, get your kids ready for college? You know, are you just starting out? Are you getting ready to retire in, say, ten years? So all those factors go into how you're gonna diversify.
Speaker 2:But even so, you know, here again, when I look at diversification, it goes to back down even to your bank accounts. You know you may not want to put all your money in one bank. You know, yeah, I mean, that's, that's kind of how I look at. I've got money in credit union. I've got money in in black banks. I've got money in regular you know you're brookin brick and mortar banks. I've got money in Online banks. You know, off off a different. You know diversification because of the fact that you know I want to To spread the wealth around. So that, here again, access which one don't want to access you know this month and it goes.
Speaker 2:Put all your eggs in one basket.
Speaker 1:And that goes back to so on a lot of seed, because he or so is the most see will get reap, a built, a bountiful harvest, because one thing that a bank is gonna do is matter. Doesn't matter whether it's a little bit or a lot, as long as you making your money on money, you're doing a good thing. Yes, not like you got a thousand. The checking accounts, you know. You say a relationship with a bank, ladies and gentlemen, just doesn't. There, selling me a check in account, there'll be a savings account and usually, particularly now, a lot of banks are paying some money on savings accounts Because they need that cash in order so they can do some other stuff with it.
Speaker 2:So yeah, and then some of you other Institutions like American Express and Capital One. They sometimes have higher interest rates paying on your dollars money market Accounts that you might want to look at just from a strictly from a savings perspective. So here in their diversification you know one of the things that you know I look at it as far as a checking account, just a regular, from a password savings and checking account at a regular brick and mortar location. I only put them enough money in there to pay my. You know, pay whatever.
Speaker 2:I'm gonna pay. I don't, I don't try to save with, you know, wells Fargo, bank of America and any of those because they're not gonna pay you any money.
Speaker 2:Remember again, they're turning your money over ten times. So for every dollar you put in, they're gonna turn it over ten times. But they're not gonna allow you to do that. They're not gonna pay you that type of interest. But you know, if you put your money in a credit union, it's gonna work better for you. Or if you find an institution, like I said, capital One, american Express, there was a couple of them out here that pay, you know, a little bit more interest, that's where you want to actually save your money. So here again, you want to diversify your money. You know, this account over here is for paying bills. This account over here is for growth.
Speaker 1:Yeah, you know. Another form, good form, of using a diversification, george, would be to diversify within an industry. Let's take energy for a set, for instance, with a solar energy, gas, electric, whatever, all whatever entails energy. Number one is the necessity based industry, and so I'm speaking from a stock bond Perspective as well is that now you can diversify within that industry. So now you hedge your risk, or at least you mitigate a risk, because that industry is a growth oriented industry, industry.
Speaker 1:All right, you can take other industries that this out there for the be retail or industrial, and there's a plethora of industries out there. And so, by utilizing a top-down approach, if you will, one could take their own investment strategy, and you can do this within a. Well, they have these index funds that you can do this in, and to a Modelcom degree, depending upon the structure, like George was saying, of your 401k, you can allocate a certain amount of money to an index fund and, in essence, be doing the same exact thing that I'm talking about diversifying within that industry, which gives you a much bigger hedge. Or I like to use the word moat, such as Warren Buffett used, because I'm always looking for that moat. What can you know for the government or health challenge cannot stop a necessity-based type business. Well, if you can invest in that and diversify your portfolio with that, then it just gives you that slight edge to get ahead.
Speaker 2:Thanks, absolutely. You know, as you talk about different investments from a stock perspective, you know you want to look at high end. Right now the buzzword is the magnificent seven. But you know, here again, if you just invest in those seven stocks you're not insulating yourself from. You know, any downturn there you may also want to put, if you're going to put money in those seven stocks, you may want to also put it in other stocks. That kind of compliment that. Because even in the S&P 500, here again, that's 500 different companies. You know it's just that those seven, those seven may be high producers but it's also insulating the S&P by having other stocks that are in that group of stocks. So that's like a mutual fund. You know you've got multiple funds that compliment each other. One goes down, the other, one goes up. You know it's also.
Speaker 2:You know me always trying to reel it back to real estate. It's like that. You know real estate, yeah, you want to get started and buy that first property, but the more properties you buy, the better you insulate yourself from. You know a tenant moving out, you know if I got five properties and a tenant moves out, you know I'm not in a situation where how am I going to pay that note on that one, because I've got four other ones that will help me do that, so you can diversify in real estate also.
Speaker 1:Absolutely. I think that's the foundation of diversification Real estate game. So we talked about what it is, we talked about how you can do it. Did we really tell? Well, I think we did talk a little bit about why you should diversify. I think we talked about this.
Speaker 1:And now who? Well, you may say, well, I don't have a whole lot. I don't have. You know, I'm not an investor yet. I don't have any stock, I don't even have a 401k. That's fine, all right, because what you can do is educate yourself, learn more about investing, learn more about not just diversifying easy for me to say not so much just the diversification of it, but also why am I going to do? What's my goal? What's my plan? Hey y'all, this is Black History Month. It's the first two months, or the first what? 60 days, is it so, george? Or the new year? So I know a lot of you are still out there planning. So, before you start diversifying, start investigating on what I'm going to buy and then, like George says, and now look at what's within that, what compliments that, and boom, you're off and running diversified. So you don't have to wait until you accumulate a whole bunch of money to start diversified or get deep into investing. You can start today.
Speaker 2:Absolutely. And it goes back to, you know, setting goals Anytime you're going to start doing anything that's going to affect your future. You got to have a goal in mind Because, here again, you know if you don't have a goal, how you know when you get there. So you just got to have a goal and with that goal, once you, you know, establish that goal, then you can figure out, you know so, what's going to help me get there? How do I diversify my portfolio so that it complements my goal and helps me get there? So here again, income or growth, you know which one do we want to do? So those are all the fundamental things that we have to think about when we're thinking about investing. It's not just throwing your money at something because somebody said it's a great idea. You got to ask yourself why. You know.
Speaker 2:You got to ask yourself why and here, again what's the best time to diversify whenever you're going to invest?
Speaker 2:I mean you're going to have life changes, you're going to have, you know, things that affect your life, but still you want to be in a position where you're equally balanced, where one thing you know hopefully doesn't crash on you and you know you've got all those things that are coming down at the same time. So with a diversification, you're somewhat insulated, absolutely. I mean, just when I look at, you know, when I look at my portfolio, as far as from a repartments perspective, I've got four or five different sources of income and I've got them spread out throughout the month so that you know, you know, like you've heard me use this term before mailbox money. You know, I know it's the eighth.
Speaker 2:So I know something's coming in from this particular source. I know it's the 15th, I know there's money coming in from somewhere else and I know it's the end of the month. You know money's coming from somewhere else. So it's diversification, even in that form, as far as how you're going to maintain your lifestyle on a monthly in and out basis.
Speaker 1:Those are the benefits that are derived from diversification. That's right. That's right, that's how you said just now. But we've got to what?
Speaker 2:is it plan with the end in mind?
Speaker 1:That's right. That's right. And speaking of that, how many people out there don't raise your hand? But how many people out there have auto pay? You know, you may auto pay your car door. You may auto pay your house. No, may auto pay your rent and put the person that you should be auto paying as yourself. Okay. So make sure that that money can take you 10%, at least 10%, of every paycheck and when it hits your account, it automatically goes into a saving account, automatically goes into a money market, automatically goes into an account for you. Heck, even 100, even $100 a month is 0%. Interest is still $1,200 at the end of the year. That's 1200. And you had a year before.
Speaker 2:Right.
Speaker 1:Okay, that's the start. Auto pay, auto pay yourself that's a diversify. If you're going to diversify, you got all these other investments. Think about it. You send the money to everybody else, who self, who you. Does that really make sense? Heck you. The person is making all the money and you send in and out to everybody, except you put yourself on auto pay. All right, back to you, george.
Speaker 2:I mean, it goes back to what I'm out here again. My philosophy pay yourself first.
Speaker 1:That's it.
Speaker 2:Or you pay anybody else. Pay yourself, yes.
Speaker 1:Because something happened. You don't know how to arrest them. Folks get paid. That's right Okay so pay you first. You know, forget that GA, ap, general accounting accepted principles. Don't accept those first. There's no nugget from the crotch of the old man podcast. Another great reason to listen in to the crotch of the old man podcast. Tell them, george.
Speaker 2:Hey, and we're on YouTube too now. So hey, to in the YouTube, you don't?
Speaker 1:want this listen to it.
Speaker 2:You can see us on YouTube.
Speaker 1:Absolutely, you know, and we're gonna bring it, we're gonna continue to bring it, but instead of us talking about ourself, anything else we got to share with the audience about Diversification?
Speaker 2:no, I think we've kind of talked about diversification. So which we kind of pearls of wisdom? You got the End us up with the day.
Speaker 1:All right, all right, here we go. Risk is inevitable, but fear is a choice. Don't let fear hold you back. Don't let fear hold you back I'm saying that again, somebody out there scared. Don't let fear holds you back from taking calculated risks. Pursue your goals and plan for.
Speaker 2:Sounds great good word.
Speaker 1:I'm sorry you don't have to keep running. Mom, that was an original.
Speaker 2:Thank you. All right and, as we always say, on the crotch it. Oh man, you didn't know. Oh yeah, you know, take care All right.
Speaker 1:Have a great day, peace oh.