DON’T PUT ALL YOUR EGGS IN ONE BASKET
Whilst you may not be investing in eggs, this centuries-old wisdom applies wholeheartedly to modern day investments.
As part two of last week’s article, let me quickly remind you that whatever your goals, unless you win the lotto, you will not move passed average unless you fully understand the elements that contribute to wealth and abundance. I have a list of 7 common pitfalls in the financial journey and today we will address the third and fourth point.
3. Insufficient Diversification
Diversification is generally considered a key to reducing risk and enhancing potential return. Business owners often make the mistake of pinning their retirement prospects on the eventual sale of their business.
This is a huge gamble given that 85% of all businesses don’t make it past the 5-year mark. Entrepreneurs should conduct their finances in the same way as an employed individual, and this means taking on a healthy portfolio of diversified investments.
True diversification means investing in different asset classes like property, structured investments, stocks, fixed-interest products, bonds and cash and they should have varying lengths of maturity. With a well-diversified portfolio, you are never too dependent on how well one product or asset class performs. Hence, not all your eggs are in one basket.
4. Insufficient Life Insurance
We are quick to insure our cars, homes and even cell phones, but we overlook our most important asset – ourselves.
With bonds, school fees and bills to be paid, it is important to have proper coverage on all income earners in the family. Some people may have group term life insurance through their employers, but this alone may not be sufficient. Be careful not to be overly dependent on group cover for these plans can be inflexible and sometimes insufficient. Look into purchasing individual coverage to suit your family’s particular needs.
Turn expenses in investments. If you’re spending money on something that may not have long-term benefit, and it’s a monthly expense, then perhaps you need to consider how you can spend that money more wisely. Look out for the final three pitfalls in next week’s article!