How Do You Diversify Your Investments?

 August 27, 2009

Interview with Bill Schultheis, author of The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life

coffeehouseinvestor.com

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Mike Carruthers:
If the recent loses in the stock market have taught us anything it's the old rule of diversification.

Bill Schultheis:
There was an interesting segment on "60 Minutes" in April about the tragedy of 401K plans and how people who were close to retirement lost 50% of their portfolio. Well that means they had 100%  in stocks and so they were not diversified.

Financial Advisor Bill Schultheis, author of the book The New Coffeehouse Investor offers a new rule of thumb for allocating your investment dollars.

Have the amount of bonds in your portfolio equal to your age. That would mean that a 65 year old would have had 65% in bonds, 35% in stocks in this recent crash. Their portfolio would be down about 10 - 12%. Now, no one likes their portfolio to be down 10 - 12% -  but it's not a disaster.

Of course there are a lot of ways to buy bonds - so where do you start?

A good place is to put it in Vanguard's Total Bond Market index fund. It's a fund that has very low fees, that has been incredibly consistent over the years.

And there's a big investing myth that Bill wants everyone to understand…

That by actively following companies you can pick enough good ones and avoid enough bad ones to outperform the stock market average - it's a fallacy. 80 - 90% of all professionally managed mutual funds do not outperform the stock market average.

To hear the complete unedited interview, click here