Diversification

Some of us have more to diversify, and may be less susceptible to risky investments than others.

Diversifying our portfolios allows us to have something left if some of our investments fail, or don't pay off.

Over the years, I've made some money here and there, and have had time to make some mistakes. I started out with a savings account, a checking account, a bit of credit card debt, and a student loan. I wrote some checks that bounced, and I was sometimes late paying the minimum due on my one credit card that had a low line of credit and a high interest rate. My credit wasn't so great.

I changed jobs and started working with a state agency that had a credit union which was affiliated, somehow, with an institution that sold mutual funds. The credit union was a good idea, because they paid interest on my checking account. The mutual funds was a good idea, for me, at the time, because I could afford to buy $50 per month of a mutual fund that historically paid more than what I made off interest with my checking account. It wasn't so risky, because as the mutual fund fluctuated in value, I paid accordingly. And I paid amounts I could afford, that I'd otherwise blow on something I didn't need.

After a couple years investing in more conservative mutual funds, I decided to move that money into one that was less conservative, and start investing in one that was more risky. I felt that if I was gonna be conservative enough to use a mutual fund, I might as well be as risky as possible with it and invest in something global. I also started paying twice as much, since by this time my salary had doubled. I was young, and had lots of working years in front of me. I could afford to lose.

The mistake I may have made was choosing a mutual fund for which I paid a commission of 4.25%. So, every $50/$100 deposit I made was automatically worth $47.875/$95.75. But overall, because of the mutual funds' performances, I still made a hefty profit.

I stopped depositing money into those mutual funds - to avoid paying the commission, but still have two of the three I have deposited money into over the years. I wanted more than they could ever pay: Mutual Funds weren't risky enough for me.

I started buying stocks using an online trading company in 1998. Sort of a mistake, too - but something I learned from. By this time I was making enough money, that I wasn't afraid of risking losing. I've learned more by losing money than in most classroom lectures.

I invested in chunks of $1000 - and I managed to buy a couple IPOs. The worst investment, I eventually sold for $23. On certain days my stock portfolio went up in value over $3000 - and I'd only invested about $17000 in total by that time. Those were the crazy days when NASDAQ was insane. The way I looked at it was the most I could lose on a single investment was $1000. But there seemed to be no limit to how much I could gain.

I stopped looking at it that way in early 2000, when I sold my condo in Chicago and bought a house in San Francisco. Thankfully, I didn't lose too much, since a.) I didn't invest that much (and actually came out ahead in a couple cases), and b.) I had money in other places.

I went back to putting money in the stock market in 2001 after it dropped to a very low point, and have since regained all that was lost, and then some. 2003 was very good, and 2004 was pretty flat, as has been this year.

Now, I'm a little less interested in losing money or gambling. At least until I feel more secure in other areas. I haven't been investing more in stocks, but sometimes sell some I have and buy others with the proceeds. I feel like the allocation I have in the stock market is sufficient. I opened a money market account with my credit union - that I've been a loyal customer of for thirteen years.

Now I deposit rather large chunks of cash into the money market account in addition to contributing extra to the best investment I've made so far: my house.

I feel really good about how I've spread out my money, and all the layers of financial protection I have.

Taking calculated risks, and looking into different investment strategies has worked well for me.