Why You Need To Stick With Diversified Investments and Income Sources

by The Smarter Wallet on March 14, 2009

Here’s a cautionary tale that will encourage you to stay with diversified investments and spur you to work on various income sources.

It’s hard to imagine how anyone can lose 97% of their net worth in one fell swoop. But it happened to this guy, a Madoff scam victim. He had $4 million dollars at one point, and was happily retired in his early 50′s, but now he’s broke, has to live with a parent and has to start over. Here’s his story:

Click this link or the image below to watch the video.

madoff scam victim, diversified investments, income sources

There have been many scam victims who’ve ended up in this same boat, no thanks to the weasel that is Madoff. I find this depressing. Imagine being middle-aged and having to suffer such a financially devastating loss during a time when the economy is in the tank and the job market is so sour.

The very harsh lesson I’ve learned from all the things that have recently transpired in this grand scale, is this: that diversification is extremely important. It’s advice we hear about often, but this story really drives home this point for me.

Why You Need Diversified Investments And Income Sources

Diversify your investments.

No matter how great and wonderful a particular investment, financial institution or money adviser sounds to you, by placing your funds in one basket, you increase your risk of loss. I suppose even the most sturdy and solid of “baskets” can crumble in certain circumstances, so by making sure your money is allocated into various investments (baskets), you’ll minimize that risk. Not to seem cynical, but trusting one adviser with all your money can be disastrous, as even the best of them can fall from grace or commit a major blunder.

Diversify your income sources.

This was one area I’ve only started to consider seriously. In the past, I relied on my employment and investments to supply me with the income I needed. During this difficult economic recession, a lot of people have seen their income from their jobs and retirement funds evaporate.

Seeing the stock market take a nosedive and people I know facing job layoffs left and right has spurred me into action. I’ve since worked to develop more diversified income channels through business efforts and other cash flow rich endeavors. I consult, I work on small business projects and I stick to diversified investments as much as possible. So far, it’s helped shield me from major financial damage during this crazy economic period. Here are some of our ideas on this subject:

Best of luck to all of us as we weather this economic downturn.

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{ 2 comments… read them below or add one }

1 Economic Crisis Cartoon March 14, 2009 at 1:28 pm

It is quite sad to hear all these stories of millionaires becoming poor over night.

2 Seeking Lemonade March 15, 2009 at 3:12 pm

Well, “Diversified Investments” is just another way of saying:
DONT PUT ALL OF YOUR EGGS IN ONE BASKET.

Of course, all of those broke-overnight victims of Madoff forgot that fundamental rule, all blinded by Madoff’s stories and impossible returns,

Boo-hoo to them.

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