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Let’s examine the following fictitious example: There are two people. They both hate the rain. The first person spends a lot of time and energy, daily, trying to predict the weather by reading tea leaves, consulting psychics, palm readers, tarot cards, Ouija boards, astrologers, haruspex - a person who claims to see the future in sheep intestines - clairvoyants and the like, trying to figure out when it will rain so he can stay inside.
The second person just carries an umbrella.
This, of course, is a simplistic illustration of, what I like to call PPP, the power of practical preparation. We can waste enormous personal resources, getting lots of gray hair and heartburn in the process, trying in vain to avoid unhappy events. Or we can choose to be prepared for them, to the extent we can, and get on with the more interesting, appealing and joyful things in life.
When it comes to financial planning, I believe we should strive to be people with umbrellas. This is why I speak to folks about the power of diversifying among asset classes and within asset classes. Please take note, this diversification, in and of itself, might not protect us as much as we might like, yet, in my opinion, it is better than putting all our eggs in one basket and all of our baskets on one truck.
A well-constructed and diversified portfolio of investments – I like to call it a beautiful financial mosaic – can serve as a kind of planning umbrella. Like an umbrella it doesn’t block bullets and, cartoons aside, it isn’t a parachute.
Your financial mosaic cannot and will not insulate you from or eliminate all risk inherent in an unpredictable world. I am sure we all know that during a hurricane, an umbrella is not going to offer us the protection we might want. However, during the financial markets equivalent of rainy weather, it may aid in preventing us from getting soaked.
If we could predict the future accurately, we would be fools to diversify. We would simply put all of our money into a company that was going to skyrocket in value and keep repeating that process. Before long we would be billionaires. Nice fantasy!
We cannot predict the future. Neither can anyone else. Instead we strive to manage and mitigate risk through sensible asset allocation. You can study up on this and/ or speak about it with a financial services professional you trust. It is crucial to remember what one of the great philosophers of the last century said: “Knowing is not enough we must apply. Willing is not enough, we must do”.
Scott McGimpsey September 14th , 2016
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. Neither Summit Brokerage Services Inc. nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm with securities offered through Summit Brokerage Services Inc., Member FINRA, SIPC