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Diversification
Mar. 28th, 2010 06:04 pmYou shouldn't put all your eggs in one basket.
Unless you have only one egg.
Well, I now have more than one egg in my retirement investment portfolio, and so I should have more baskets. I've been doing some research and almost everyone agrees. You need:
* stocks and
* bonds
Sounds like two baskets to me. Can I have more?
* gold
* collectibles
* art
* cash
Bleh.
Well, I can settle for stocks and bonds in my retirement investments but diversify elsewhere. Here are ideas I've heard on how to diversify elsewhere:
* buy a house
* buy extra real estate and rent it out
* have a three year's supply of food on hand
* learn how to do more things yourself so you don't have to depend on being able to pay others
* keep your job skills up to date
* moonlight
* start side businesses
But back to the investments. This is one of those topics that changes over time. For example, look at what I learned from Benjamin Graham's classic, The Intelligent Investor: A Book of Practical Counsel. In 1914, investing meant corporate bonds, usually railroad issues, with a return of 4.5 - 5.5%. By 1947, US savings bonds were better than top-grade corporation bonds (much safer and with similar returns).
Before 1930, most college endowment funds were restricted to bonds and real estate. As late as the late 1940s, most people knew nothing about common stocks or thought they were risky. But by 1958, 50% of college endowment funds had investments in stocks. By then, common stocks were considered reasonable investments for your portfolio because a) capital gains were taxed at half the rate of dividends, b) diversification between stocks and bonds tends to improve profit and c) stocks were considered a hedge against inflation.
I have the 1959 edition of that book. Since that time, discount brokerages made investing in stocks possible for people without that much money. Mutual funds existed back then (though they were called "investment trusts"), but only later were no-load funds and index funds invented. Now (for a short while, at least), dividends are taxed less than capital gains.
Inflation-indexed government bonds have been invented, but I think government bonds are back to being comparable to corporate bonds.
And only in the very recent past have advisers started recommending foreign stocks and bonds to US investors as any real percentage of the portfolio.
So, even using just stocks and bonds, there are quite a few directions to go.
Making Stuff Last: Dairy
* cheese - "To keep it from getting moldy, store your cheese in an airtight container with a couple of lumps of sugar." (p. 6, Make It Last) I haven't even seen lumps of sugar in a very long time. Or "moisten a paper towel lightly with vinegar and store that with the cheese. Don't be too generous with the vinegar, or it will affect the taste of the cheese." (p. 6) I've had pretty good luck by keeping the cheese wrapped up in its original plastic packaging and then putting the whole thing into a sealed plastic container. You can also freeze it. That cheese that I bought at Costco a while back, some of which I stored in the freezer, kept very well and I was able to use it all in the normal way.
* milk - I've heard this can be frozen, but it might separate. I'm not clear on whether shaking the milk brings it back to a good condition or whether you should use the milk only for cooking at that point.
* yogurt, cottage cheese, sour cream - I've heard that once you have opened a package, leaving the plastic wrap on, under the lid, lets it spoil more quickly than removing it. I also vaguely remember hearing that once you open things things, storing them upside down helps somehow. Mostly it's pretty easy to eat these things before they start growing mold.
* ice cream - If your ice cream is too hard to serve, some people have told me you can microwave it briefly to soften it.
Unless you have only one egg.
Well, I now have more than one egg in my retirement investment portfolio, and so I should have more baskets. I've been doing some research and almost everyone agrees. You need:
* stocks and
* bonds
Sounds like two baskets to me. Can I have more?
* gold
* collectibles
* art
* cash
Bleh.
Well, I can settle for stocks and bonds in my retirement investments but diversify elsewhere. Here are ideas I've heard on how to diversify elsewhere:
* buy a house
* buy extra real estate and rent it out
* have a three year's supply of food on hand
* learn how to do more things yourself so you don't have to depend on being able to pay others
* keep your job skills up to date
* moonlight
* start side businesses
But back to the investments. This is one of those topics that changes over time. For example, look at what I learned from Benjamin Graham's classic, The Intelligent Investor: A Book of Practical Counsel. In 1914, investing meant corporate bonds, usually railroad issues, with a return of 4.5 - 5.5%. By 1947, US savings bonds were better than top-grade corporation bonds (much safer and with similar returns).
Before 1930, most college endowment funds were restricted to bonds and real estate. As late as the late 1940s, most people knew nothing about common stocks or thought they were risky. But by 1958, 50% of college endowment funds had investments in stocks. By then, common stocks were considered reasonable investments for your portfolio because a) capital gains were taxed at half the rate of dividends, b) diversification between stocks and bonds tends to improve profit and c) stocks were considered a hedge against inflation.
I have the 1959 edition of that book. Since that time, discount brokerages made investing in stocks possible for people without that much money. Mutual funds existed back then (though they were called "investment trusts"), but only later were no-load funds and index funds invented. Now (for a short while, at least), dividends are taxed less than capital gains.
Inflation-indexed government bonds have been invented, but I think government bonds are back to being comparable to corporate bonds.
And only in the very recent past have advisers started recommending foreign stocks and bonds to US investors as any real percentage of the portfolio.
So, even using just stocks and bonds, there are quite a few directions to go.
Making Stuff Last: Dairy
* cheese - "To keep it from getting moldy, store your cheese in an airtight container with a couple of lumps of sugar." (p. 6, Make It Last) I haven't even seen lumps of sugar in a very long time. Or "moisten a paper towel lightly with vinegar and store that with the cheese. Don't be too generous with the vinegar, or it will affect the taste of the cheese." (p. 6) I've had pretty good luck by keeping the cheese wrapped up in its original plastic packaging and then putting the whole thing into a sealed plastic container. You can also freeze it. That cheese that I bought at Costco a while back, some of which I stored in the freezer, kept very well and I was able to use it all in the normal way.
* milk - I've heard this can be frozen, but it might separate. I'm not clear on whether shaking the milk brings it back to a good condition or whether you should use the milk only for cooking at that point.
* yogurt, cottage cheese, sour cream - I've heard that once you have opened a package, leaving the plastic wrap on, under the lid, lets it spoil more quickly than removing it. I also vaguely remember hearing that once you open things things, storing them upside down helps somehow. Mostly it's pretty easy to eat these things before they start growing mold.
* ice cream - If your ice cream is too hard to serve, some people have told me you can microwave it briefly to soften it.
