Successful Investing and Diversification
Recently, Paul Krugman, a well known Nobel Prize winning economist and a regular New York Times columnist, suggested that the wealthiest Americans wanted a depression because aggressive monetary policy has materially reduced their income from bonds and other interest-paying assets.
While it is very likely that the wealthy, like the rest of us, have suffered a reduction of interest income, this is probably not the whole story.
We cannot precisely pinpoint the composition of America’s richest or how their assets are invested. However, it is almost certain that any list of wealthy Americans would include the Walton family, founders of retail giant Wal-Mart, Warren Buffett, CEO of Berkshire Hathaway, and Bill Gates, co-founder of Microsoft Corporation.
While not privy to the details of these individuals’ assets, surely the value of their corporate interests far exceed the importance of the loss of a few basis points on the fixed interest portion of their portfolios.
For these “rich” Americans, a depression is the worst case scenario.
Smart investors diversify. While the mix between fixed income, equities and alternative investments should reflect individual financial circumstances, the concept of diversification is clear and largely universal. Investors should carefully consider their own financial situation and objectives, and, with the help of their advisor(s), develop a strategy that can achieve those goals.
All suggestions and comments are welcomed.
Walter J. Kirchberger, CFA®