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A Diversification Strategy that Leads to Early Retirement

March 10, 2012

A Diversification Strategy that Leads to Early Retirement

by John Bearss, Retirement Specialist

This week I will explore Roadblock Number 3 according to Larry Barrett’s article in the Financial Planning Magazine entitled the 7 Roadblocks to Early Retirement.

Roadblock #1 – Not Saving Enough, Early Enough (Listen to Roadblock #1)

Roadblock #2 – Ignoring Free Money (Listen to Roadblock #2)

Roadblock #3 – Failing to Diversify

A common investment pitfall is spending far too much time trying to pick individual stocks that will increase in value. It's much more important to understand proper diversification. 

Diversification spreads risk. If one industry or sector suffers a loss and it surely will during your working lifetime another may gain. For example, if stocks in the consumer sectors are down, stocks in the technology sectors might be up. Further, owning bonds provides additional diversification. Stocks and bonds often move in direct opposition to each other. When stocks are down, investors buy bonds. This is called the "flight to safety."

As Larry suggests, diversification is important so don’t forget to diversify between different asset types which may include precious metals or land.  And don’t forget about risk tolerance diversification such as annuities with a lifetime guaranteed income stream with the money you can not afford to lose.

Diversification is important and that is where a financial planner can be of great assistance to you.

Thank you for joining me this week for your Retirement Minute.

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