(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