DIVERSIFICATION
Broadway musicals run six days a week year in and year out. It
doesn’t matter if the lead actor or actress gets sick or if a chorus
dancer sprains an ankle; the show must go on. And the show can
go on because each cast has understudies who can step in and take
the place of anyone who cannot perform. For instance, if the performer
who plays the role of Simba in Disney’s The Lion King gets sick
and can’t perform, there is another performer in the cast who has also
learned the role of Simba and can step in at a moment’s notice until
the regular performer recovers. Most musicals also have a “swing.”
The swing is the most versatile performer in the cast and can play
almost any role in the show. Often, the swing is called on to step
into a role only moments before the curtain rises or after the show
has already begun because someone has been hurt or becomes sick.
Swings and understudies are essential to a Broadway musical’s success
because without them, the show can’t always go on.
Just as the show must always go on when you’re on Broadway,
your portfolio and your purchasing power must always go on growing.
Any setback in your investment portfolio or in your purchasing
power can disrupt your plans for the future. So what do you do if
one of your investments gets “sick” and can’t perform as well as you
had expected? Hopefully, you’ve diversified your portfolio, so one
of your other investments can step in and pick up the slack in growth
that your underperforming investment has created.
Most often, investors will diversify among a few mutual funds,
some bonds, and cash. They do so because most financial planners
you talk to will recommend a mix of these three vehicles. They recommend
this mix because as mutual funds are losing value, bonds
are usually gaining—or at least holding—their value, and cash is
holding its value—unless, of course, inflation is rising. On the other
side of the equation, as bonds are losing value, mutual funds will
usually be able to pick up the slack. So in essence, bonds are the
understudies for mutual funds, and mutual funds are the understudies
for bonds. This is a great strategy within your bond andequity portfolio. Diversification decreases risk. Unfortunately, far
too few investors are taking advantage of the “swing” of investment
vehicles: Forex