Some time ago, I watched the dock The China Hustle on Netflix. It tells of the time after the financial crisis when U.S. investment bankers tried to make money back by listing Chinese companies on the NYSE (The New York Stock Exchange) in a crazy trade.
The matter seemed suspicious, so several investors began to investigate these companies, and found that there was fraud behind them. Behind the billion-dollar companies, small factories in China’s vaginal villages were revealed. All the numbers were fake.
At the end of the dock, American investors were interviewed who had lost all their savings after the fraud was exposed. Tragic. One thing that came to mind: why did you invest all your money in a completely unknown Chinese company?
WHY DID YOU NOT DIVERSIFY YOUR INVESTMENTS ?!
All in all, good docker, really worth some Monday night. 3.5 / 5.
But stock market investment doesn’t have to be any gambling. We learn from the mistakes of others. Remember we diversify our investments well.
Because there is always a risk involved in investing. The only way to manage risk is through decentralization. So let’s go through three good ways to diversify your investments.
Although a listed company very rarely goes bankrupt. In the event of bankruptcy, investors may lose all money invested in the company. Therefore, you should make sure that other companies in the portfolio are doing better.
Because we don’t want all of our money to be stuck in one company, we diversify our investments across many different companies and industries. In this way, we are not completely exposed to, for example, the poor management of an individual company, weak demand, or a dying market.
An index investor (like me) automatically diversifies his investments across many different companies through the fund. The content of the index is also updated so that investment targets remain current.
I also want to replenish the portfolio with some global investment. Why?
If America were hit by a severe recession, crisis, or bubble, it would probably affect both my earnings and capital gains. The risk of my job going down or my company going bankrupt would be higher than usual. Even though I keep the buffer money in a bank account, the funds are not endless either.
Then I might face a situation where I would have to interfere with my investments. If only Nordic index funds are owned in that market situation, we can only imagine that the time of their sale is not the best possible.
For this reason, geographical decentralization is worthwhile. To refuel your portfolio from outside the corners of your home as well. I applied for portfolio global diversification
This is what my investment plan looks like: € 50 is transferred from my bank account every month as a direct debit to a book-entry account. From there, according to the monthly savings agreement, it is split in two, half of which goes to the super fund and half to the Smart portfolio. Every month.
Assume that one-month stock prices have risen, making the price of fund units a little more expensive. That’s when I get a little less fund share with fifty. In other months, stock prices have fallen again, giving me slightly more fund shares. In this way, in the longer term, I apply for an average purchase price for the funds.
While the golden rule of the stock market is “buy cheap and sell expensive”, it is easier said than done. Because funds are less likely to have trading costs, they can be refueled with a smaller amount a little each month when the purchase price is diversified. So my own golden rule is: buy a little every month.
Okay! With these three decentralization techniques, you get off to a good start. Do you think of other ways to diversify investments? Report them in the comments field!
A great end to the day for you! If you don’t have bigger plans for it, and you’re looking for motivation to decentralize, take over The China Hustle.