(Photo: TV Guide)
You know what happens?
You know what doesn’t happen? Uncontrollable laughter if you’re not watching Fox’s hit sitcom New Girl starring Max Greenfield and Zooey Deschanel (who just so happens to be the younger sister of Bones star Emily Deschanel).
The show is set in sunny Los Angeles focused around four main characters: Jess, Schmidt, Nick, and Winston, who all happen to be roommates in a cozy loft. Jess’s best friend, Cece also happens to be a main character that eventually becomes the love interest of Schmidt. Together, they each bring a different element to the show, which is why it has such a great following today.
Now, you’re probably wondering, “What does all of this have to do with investing and diversification?” The answer is everything and I’m going to use the characters to explain how.
Jessica “Jess” Day
(Photo: imgflip + Giphy)
Jess is the quirky and ethically correct roommate that keeps all of the other roommates in line. When investing, it’s important to own assets that keep your portfolio aligned with your overall goals.
If you want higher growth potential, then you may want to include stocks in your portfolio. If you want consistent income, then bonds and dividends offer the opportunity to grow your assets at a consistent and more conservative rate. Traditional real estate and real estate investment trusts (often referred to as REITs) provide exposure to income from properties with and without the responsibility of being a landlord, respectively.
All of the above options are great assets and are even greater when they can work together within your portfolio. That’s the beauty of diversification. It allows you to participate in different investments so in the event one is lagging; another one may pick up the slack.
Speaking of slack(ers)…
Nicholas “Nick” Miller
Nick is an ex-law student turned bartender that is exceptionally great at one thing: being a habitual slacker. When it comes to our investments, we can’t slack off. We must monitor them, especially when we’re diversified.
Although diversification helps us hedge one investment towards another; we still need to keep tabs on our assets to make sure they aren’t becoming overextended. That simply means that over time, one asset can accrue more value in your overall portfolio presenting increased risk situations.
A simple solution to this is rebalancing. According to Investopedia, rebalancing is, “The process of realigning the weightings of one’s portfolio of assets.” In translation, that means to shift around your assets to prevent putting all your eggs in one basket.
Vanguard has a great PDF document called Best Practices for Portfolio Rebalancing, which states that this act may be performed once per year or several times throughout the year. However, one must know that the costs associated with rebalancing increase as the number of rebalancing events increase.
[1st Name Unknown] Schmidt
Schmidt is a fast-talking marketing associate that is known for his quick whit and extreme attention to detail. When it comes to diversification, you must pay close attention to what you’re investing in to avoid over exposure. Too much of the same or similar investments may put your portfolio at risk. This attention to detail seems to be directly linked with rebalancing events, which makes sense since Schmidt and Nick have been buddies since college.
An investment hack to save you some time from having to be so detail oriented with your investments is to utilize investment institutions that offer automatic rebalancing, particularly based on your risk profile. This means that if you’re a conservative investor and your portfolio becomes overexposed in any investment that has become aggressive, your broker or firm will automatically pay attention to that detail and rebalance on your behalf to minimize that aggressive investment. The same can be true for any investor whether he or she is moderate or aggressive in nature.
Isn’t it great to have real apps that rebalance?
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(Photo: imgflip + Giphy)
Winston is most recently known for his authoritative position as a police officer patrolling the City of Angels. But if you’ve been watching the show from the beginning, you may remember that he was a professional basketball player in the Latvian Basketball League, which is located in Northern Europe. His stats have yet to be recovered.
An important piece in diversification is international exposure. Investing in international markets provides immense growth opportunities, but also comes with added risks compared to locally based investments.
Two international investment opportunities you may have heard of are emerging markets and foreign exchange (often referred to as forex). Emerging markets are simply economic nations that are progressing towards an advanced economic state. Examples include Brazil, Russia, India, China, and Mexico. The forex market is like investing into other countries’ economies by way of their currencies. An example of this would be exchanging your U.S. dollars for euros.
Cecilia “Cece” Parikh
Cece is an ex-fashion model turned bartender (I’ll give you one guess who her coworker is) whom many people think is out of Schmidt’s league. But there are investments that many of us feel are out of our reach; however, through select investment opportunities, we not only can reach those assets, but obtain diversification in the process.
Some of these opportunities include mutual funds, index funds, and exchanged-trade funds (often referred to as ETFs).
Investing in these opportunities allows us to invest into a basket of assets that we may have thought we couldn’t afford or weren’t eligible to receive. Coupling that with vast diversification in the aforementioned funds and you have a recipe that even Spoon University would be proud of.
Investor Takeaway: Diversification is an important piece in the investing world just like it adds to the dynamic of ‘New Girl.’ It allows us to build wealth through an array of assets while incorporating risk management at the same time. If you think your portfolio is overextended in any one asset, you may want to consult a financial professional about how to diversify because the last thing you’ll probably say if your portfolio takes a financial hit is…Schmidt happens.
Who is your favorite New Girl character? How do you think each character fits with their investment concept mentioned above?
Disclosure: This editorial is by no means a solicitation to buy or sell any of the above-mentioned securities. It is merely a means for educational purposes. All investors are subject to their own research and due diligence.