My background; worked in a small hedge fund. We had real estate loan, some PE, and stock market plays.
I see ALOT of posts in here about diversification as I have been lurking for quite a while.
Here is the way I would think about the downsides of index funds or other etfs to “diversify”. You are allowing someone else to limit your risk by picking stocks, in a market that is generally closely correlated. Index funds at least are diverse, but in a true bear market (let’s say another Great Depression) it could take you 20 years just to break even.
If you hold, sure you will get a great return over decades. But the question is will you fit the “cycle” of return. This means, what if disaster hits when you are 65 and wanted to retire ? Can’t touch that money until 85 for example.
This is why Non-correlated assets are the best to diversify with. Real estate ownership, private funds with real estate in areas you trust and like (make sure they undergo yearly audits and it’s easy to check their assets just check state registrations of properties and compare to their fund size). I’ve heard gold funds are good but meh, I’m very negative on them. And I’ve met Peter Schiff in person at an industry event, still didn’t like his pitch on gold. Gold doesn’t work for you while you sleep; real estate does.
As for stocks, if you want to pick stocks, at all, there is no short cut. You will fail on a long enough timeline without significant time and energy invested to find good companies. If you want growth, price discovery will be best in small-mid cap stocks. Big companies aren’t a safe bet. Intel was insanely big in the dot com bubble, it wasn’t a “website” it had great revenue, and it dropped 90%+. I think even Microsoft took 15-20 years to break even. Tesla, etc could all do the same.
Why do I say there isn’t a shortcut? You have to have an edge on companies others don’t.
When I was young I played some blizzard games. I saw the way they monetized monthly subscriptions and how Activision announced they would copy that model of micro transactions with games like call of duty. This has been extremely profitable and was a multibager. I made this investment because I was a gaming nerd and I just knew what was going to happen better than a suit on wallstreet in this case.
Conclusion: put your money in an index fund and decide you don’t care about the cycle of returns. You aren’t limiting risk by picking a bunch of blue chips by tossing a dart at a board, just get an index fund.
Or
Pick your stocks by learning about things you love and having an edge and diversify in a non correlated asset. Maybe own some income producing real estate. There are a ton of other non correlated assets. Ex. Used Rolex submariners. Old air cooled Porsche 911s. I believe 911s outperformed the stock market from 08-2014 or something crazy like that.
Submitted June 23, 2021 at 12:51AM by WeReallyOutHere420 https://ift.tt/3zRZLwW
