Tuesday, February 21, 2012

How To Get Rich - Spread Your Wealth

Spread your Wealth. Don't put all your eggs in one basket. Diversify. Spread your risk.

Whatever you call it, don't invest too heavily in any one investment !

Just as you should develop many sources of income, you should also develop many forms of investments to provide that income.( and gains down the road of course ).

Why Spread the Wealth

By not investing too heavily in any one investment, you will be protecting your future wealth building efforts from a potentially devastating loss.

If something bad were to happen to your one big investment, it could take you years to recover, if ever. Bad things do sometimes happen to good investments and by the time you find out it can be too late. Markets react extremely fast, especially to bad news.

Develop a Plan 

To avoid investing too heavily into one investment, or even one sector of the economy, it is important to develop your own plan. This plan must be tailored to your own personal comfort level.

Everyone's plan will be different, because everyone has a different definition of risk. However, there is one
guideline I would recommend you use when developing your plan. You should decide how much of your money you could afford to lose if you make a mistake. You then tell yourself not to invest more than that amount in any one investment.Simple, but effective.

Another example is if you are developing an income portfolio, decide how much income you want to receive from one investment. You then invest whatever you need to make that income and no more. You then look for your next investment opportunity, and so on.

By having a plan and sticking to it, you will never be tempted to let your emotions take control. It is easy to get excited about a seemingly great opportunity. That's ok, but limit your investment to your previously  planned amount and no more.

Work Your Plan

As your wealth grows, so will your plan. For instance, as your wealth grows, you may feel you can afford to lose more of your money and still survive. This will effectively allocate more money to each investment, but it should always be allocated equally, therefore still spreading the wealth.

By constantly reviewing your plan, you should be able to avoid a devastating loss should something go wrong with one of your investments. You could simply absorb the loss and carry on with the next opportunity.

The Future is Unknown 

No one can predict the future. If they could, they would already own the world.

You can, however, protect your future by spreading your wealth into many investments. Choose good investments and follow your plan.

By spreading your wealth, you will be able to withstand any situation that will be thrown at you in the future.
Develop your plan and stick to your plan. Simple, but extremely effective.

As always, I welcome your comments and suggestions for future topics.

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