Diversify, But With One Advisor! | Series 6.7

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Welcome to the Enjoy More 30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

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Hello, and thanks for joining me once again here

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on the Enjoy More 30s Family Finance podcast. Every week here

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I'm talking to you about money, about your finances, help you

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take steps forward, gain confidence, remove financial

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anxiety, all that good stuff so you can focus solely on making

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your life more enjoyable. This series that we've been focusing

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on is all about the new year and the new you and setting the

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compass for the New Year.

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As always, if you like what you hear, I always ask to click

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subscribe, click Follow us on Apple podcasts, wherever you

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listen. Those stars those reviews, they really really help

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us reach the literally millions of other young families out

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there that are really just like you.

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So far this season, we've covered quite a lot. So we

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started off by setting your compass with your spouse. So

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joint goal setting, then we discussed the importance of

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actually paying yourself first, giving yourself some of that

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hard earned money every month to go towards goals to make you and

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your family happy. We covered bucketing for goals. So setting

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separate accounts for each goal that helps tracking them that

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helps achieving them. And then the extension of that was money

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blocking. So setting funds aside on a smaller daily level, to do

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more of those things that make you happy, whether that might be

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more, you know, football games, more massages more, you know,

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whatever it might be kind of on a more daily, smaller scale

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level. The importance of using the right fit investment for

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each of those buckets, we also covered. Shouldn't be too

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conservative shouldn't be too aggressive, it should be

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appropriate for each one of those buckets, appropriate for

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each of those goals and that time horizon that's with it. And

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then finally, last week, so far we talked about insuring for the

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catastrophic, versus insuring for the inconvenient. So if you

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missed any of those episodes yet, definitely check them out

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soon.

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Today's episode is titled Diversify, But With One Advisor

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exclamation point, where we're going to cover why you've likely

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heard the word diversification, it gets thrown around a lot. But

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what it actually means and the best way to go about doing it in

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my opinion, and the spoiler alert is it does not mean having

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a bunch of accounts in a bunch of different places and making

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your life really difficult. The goal for today's episode then is

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for you to be able to look at what you have now and say, you

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know, "hey, I'm spread out in a way that really reduces my

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investment risk". Or "hey, now I see I just have a bunch of

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similar stuff, but in a lot of different places, making my life

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unnecessarily difficult, while maybe not likely reducing much

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of my investment risk". So going back to our fun nautical

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examples, which I know everybody loves, we obviously need to pack

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a lot of different things on this ship for this trip that

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we're going on. And one of those items that any ship needs, if

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So diversifying means that you're using a variety of

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it's going out into the middle of the ocean by itself would be

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a first aid kit. Now we probably are going to pack it with a

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variety of medical items, right? So maybe something for colds,

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maybe some medicine that helps with a fever or something to

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clean cuts, bandages, you know, so on and so forth all different

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things. We don't know what we may need so we are going to

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bring a variety of items to reduce the risk of not having

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something that we may need available if something happened.

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We are essentially diversifying our first aid kit, spreading out

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the types of things we are bringing. What we wouldn't do is

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bring 10 first aid kits, but pack them all only with gauze.

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We would have 10 boxes only with gauze that would not reduce the

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different holdings across a variety of different areas.

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risk for our potential medical needs. If we have a cut that

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There are small companies out there, large companies, mid

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needs to be cleaned out, every single first aid kit will not be

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sized companies, US companies, foreign companies, corporate

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bonds, government bonds, and many many more that you keep

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helpful because none of them have anything to clean out a

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breaking it down into. So if you have Apple stock with advisor

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cut. What many people think when it comes to investments is that

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one and more Apple stock with advisor two you haven't

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they need a lot of different first aid kits, a lot of

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diversified yourself at all. You've just made things more

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complicated. You have two accounts, but you are not at all

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different accounts with different people, and they don't

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any more diversified as if you had all that Apple stock with

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spend enough time making sure that all of those medical kits

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one account.

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Now, sometimes this can be hard to see, because instead of Apple

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or all those first aid kits that they took all that time to

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stock, maybe advisor one has the ABC large growth fund, and

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advisor two might have the 123 large growth fund. She may say,

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create aren't all just packed with very very similar gauze.

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"hey, you know, I have two different funds, so I must be

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spread out. I must be diversified". If both of those

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funds though are large growth funds, just from different

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companies, then studies have shown that over 90% of the

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returns will likely just overlap because they're in the same

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categories. And the most famous of those was called the Brinson

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study, but yea most of the return is just due to what area

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of the market you tend to be in. If one goes up, in this example

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of ABC fund goes up, then 123 is very likely to go up as well. If

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ABC fund goes down, then 123 fund is again very, very likely

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to do the same thing, because they're in the same area of the

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market, large growth type companies. Again, it may feel

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like you're talking to two people, it may feel like you

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have two, you know, differently titled funds, so you just, you

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know, you must be spread out and diversified. But in reality, if

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that one area does terribly, you will also do terribly, because

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all your eggs are in that same large growth basket. And this is

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why you know, when we diversify, this is why when we spread

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things out, we're doing this because we don't want all of our

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investments to be dependent on how one area of the market

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happens to perform.

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Now I totally get the traditional way of thinking, you

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know, hey, I don't want all my money with this one guy or gal,

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because what if they're not on the up and up and I may, you

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know, lose it all I see stuff on TV. I watch movies, things like

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that. You know, investments are something that no one is really

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taught about in school. So it's an unknown, which I've talked

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about before, and unknowns are scary. And so I totally

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understand that. If the advisor though is following a

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diversified strategy, so spreading your money out in

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different areas all the time, you know, not trying to time the

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market, then it's a kind of a bit of a different story, in my

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opinion. A diversified portfolio then would be spread out among

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10 to 15 different funds, let's say. And each one of those funds

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might be comprised of a few 1000 holdings. So overall, you could

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have a few 1000 holdings that make up your portfolio. So what

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that means is to lose it all would require all of those

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holdings to simultaneously go out of business or become

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worthless. So you can kind of see the difference between

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having one advisor in the traditional sense, that's buying

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or selling and dabbling in a couple of individual stocks,

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versus an advisor that is spreading your money over, you

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know, a variety of different funds, and funds that each have

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several 100, or in some cases 1000s of holdings. So it's a

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very different scenario when you compare those two things.

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In order to actually implement this though, let's say we're on

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board with a diversified strategy, which I hope you are,

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you really need to be using one advisor again, in my opinion.

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Let's go back to our first aid kit example. If you have two

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people putting together separate first aid kits, Hey, Bob, and

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hey, Jane, each of you guys design your own first aid kit

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and bring it on the ship with us, they're going to have no

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idea what the other person has already packed. Did the other

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person already pack a bunch of gauze or extra cold medicine or

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whatever else? So having one person in charge of the first

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aid kit means that one person now has enough information to

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make sure that the first aid kit is well diversified. You know,

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we often say having two advisors is like having two dentists. And

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again, in our opinion, you don't have one dentist for the top of

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your mouth and one for the bottom. You have one dentist and

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make sure your whole mouth is in order. So take a look at what

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you have right now when it comes to investments. And remember the

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goal for today. Do you have one advisor with a unified

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diversified strategy? Or do you have a lot of random first aid

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kits that may all just be packed with different brands of the

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same gauze?

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Thanks as always for tuning in today and join us for next

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week's episode, which is the Series Recap. So this is the

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last individual episode of this series and next week, we'll be

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recapping all the episodes for you. I sincerely hope that these

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episodes can help as you take that sail into the New Year,

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give you more direction, give you more confidence in your

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finances so you can focus more on the goal that we always have

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despite the name of the series, which is making life more

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enjoyable for us and for our families.

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Overall as I always say if you're able to implement these

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things, then that's fantastic. If you do want help, if you do

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have questions, please do not hesitate to reach out. The Ask

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Joe section on my website enjoymore30s. That's

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enjoymore30s.com is always there to reach out. Overall until next

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week, thanks for joining me today and I look forward to

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connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management, LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor, Member FINRA/SIPC.