Diversification is one of those things that everyone talks about and everyone knows they need to do but it doesn't get talked and thought upon enough. At least to the extent that it deserves.
The trap of diversification is you split your money between stocks and bonds. Then with stock you buy an ETF and you think you are diversified for when things go down in value. An ETF is an electronic traded fund. Basically its a collection of other companies. The idea being is that if one company fails the rest in the ETF keep it up. Instant diversification. It may protect you for if things go down but not the why things go down.
An example. A person buys U.S. stock, U.S. government bonds. West European stock, West European bonds. Awesome! 4 different areas and two continents protection right?
As I mention in the video there are lots of different things to consider. Western Europe and the U.S. have a lot of things in common. Similar service based economies. Similar aging populations. Similar maxed out government debt.
If the citizens are heavy in debt and don't have jobs can they buy a lot of products from companies? Will that lower taxes towards governments needing to pay off their bonds? In all honesty I don't see Western Europe being much different from the U.S. That means that things that will weaken and lower U.S. companies will have a higher likelihood of lowering Western European companies. In the end you may not really be diversified.
EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.
The trap of diversification is you split your money between stocks and bonds. Then with stock you buy an ETF and you think you are diversified for when things go down in value. An ETF is an electronic traded fund. Basically its a collection of other companies. The idea being is that if one company fails the rest in the ETF keep it up. Instant diversification. It may protect you for if things go down but not the why things go down.
An example. A person buys U.S. stock, U.S. government bonds. West European stock, West European bonds. Awesome! 4 different areas and two continents protection right?
As I mention in the video there are lots of different things to consider. Western Europe and the U.S. have a lot of things in common. Similar service based economies. Similar aging populations. Similar maxed out government debt.
If the citizens are heavy in debt and don't have jobs can they buy a lot of products from companies? Will that lower taxes towards governments needing to pay off their bonds? In all honesty I don't see Western Europe being much different from the U.S. That means that things that will weaken and lower U.S. companies will have a higher likelihood of lowering Western European companies. In the end you may not really be diversified.
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