Spoiler alert: it doesn't mean having a bunch of accounts in a bunch of different places, making your life really difficult.

• So diversifying means that you're using a variety of different holdings across a variety of different areas. (04:24)
• ...this is why when we spread things out, we're doing this because we don't want all of our investments to be dependent on how one area of the market happens to perform. (06:22)
• If you have two people putting together separate first aid kits, "Hey, Bob, and hey, Jane, each of you guys design your own first aid kit and bring it on the ship with us", they're going to have no idea what the other person has already packed. (08:07)

Quote for the episode: "Do you have one advisor with a unified diversified strategy? Or do you have a lot of random first aid kits that may all just be packed with different brands of the same gauze?" (08:56)

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Welcome to the Enjoy More 30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

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

from simply enjoying life.

Hello, and thanks for joining me once again here

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

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

take steps forward, gain confidence, remove financial

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

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

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

compass for the New Year.

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

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listen. Those stars those reviews, they really really help

us reach the literally millions of other young families out

there that are really just like you.

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

started off by setting your compass with your spouse. So

joint goal setting, then we discussed the importance of

actually paying yourself first, giving yourself some of that

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

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

separate accounts for each goal that helps tracking them that

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

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

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

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

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

level. The importance of using the right fit investment for

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

conservative shouldn't be too aggressive, it should be

appropriate for each one of those buckets, appropriate for

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

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

catastrophic, versus insuring for the inconvenient. So if you

missed any of those episodes yet, definitely check them out

soon.

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

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

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

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

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

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

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

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

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

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

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

unnecessarily difficult, while maybe not likely reducing much

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

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

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

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

So diversifying means that you're using a variety of

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

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

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

maybe some medicine that helps with a fever or something to

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

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

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

something that we may need available if something happened.

We are essentially diversifying our first aid kit, spreading out

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

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

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

different holdings across a variety of different areas.

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

There are small companies out there, large companies, mid

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

sized companies, US companies, foreign companies, corporate

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

helpful because none of them have anything to clean out a

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

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

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

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

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

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

different accounts with different people, and they don't

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

spend enough time making sure that all of those medical kits

one account.

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

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

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

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

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

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

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

funds though are large growth funds, just from different

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

investments to be dependent on how one area of the market

happens to perform.

Now I totally get the traditional way of thinking, you

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

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

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

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

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

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

understand that. If the advisor though is following a

diversified strategy, so spreading your money out in

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

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

opinion. A diversified portfolio then would be spread out among

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

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

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

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

holdings to simultaneously go out of business or become

worthless. So you can kind of see the difference between

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

or selling and dabbling in a couple of individual stocks,

versus an advisor that is spreading your money over, you

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

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

very different scenario when you compare those two things.

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

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

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

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

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

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

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

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

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

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

aid kit means that one person now has enough information to

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

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

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

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

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

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

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

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

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

same gauze?

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

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

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

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

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

give you more direction, give you more confidence in your

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

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

enjoyable for us and for our families.

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

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

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

Joe section on my website enjoymore30s. That's

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

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

connecting with you again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

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

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer, or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management, LLC, a branch office

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

Registered Investment Advisor, Member FINRA/SIPC.