We are taught to stuff our mattress with cash if you fear your money is not safe. Likewise, depositors are taught to hold cash and put it in the bank if they fear that their money is not safe in stocks, bonds, or other investments. However, the savers in Cyprus ended up the losers, because they lost a portion of their money that was not insured.
That Cyprus event will forever change the land scape of investing. If you had your money in real estate, the 2008 crash affected real estate prices and asset values. If you had money in the stock market, you are susceptible to stock market voalitility. Since 1996, the S&P 500 looks like a SINE curve- it keeps going way up, way down, way up, and down again. It's up now, but what will happen in the future?
But one of the lessons I learned from Cyprus is that a place that you think is safe, may actually be a dangerous place. That is why it is important to not have all of your money in one asset class - unless you really know what you are doing. Even thenm you ahve to approach with lots of caution.
Even a non-investor has to worry. We are entering a world where a saver who puts all his money in the bank is at risk of it being taken away. Leaving it all at home could be risky as well. There are dangers there like theft from both internal and external thieves, loss from fire or other disasters.
That is why one investment strategy is to diversify your investments. I don't necessarily mean to put your money in different stocks or mutual funds, but I mean in completely different asset classes. You could put some in the bank, some in precious metals some in numismatics, some in real estate, some in businesses, heck some in your home, some overseas, some in safe deposit boxes, and in other places. By doing so you safeguard your wealth. So if you lose big on one are it will not clear you up completely.
Comments