Re-Thinking the Way You Invest

During these trying financial times most people are re-evaluating how and where they decide to invest their money. However, for many it is too late as they have already lost years and years of gains on their investments. The advisors that will make it through this mess unscathed are the ones that will learn to adapt to the current conditions and understand that their clients are sick and tired of losing money.

Many advisors are still spouting buzz words like asset allocation and diversification, while trying to make you feel all warm and cozy about putting your money at risk. Understand that diversifying your investments it not at all a bad idea, one just needs to understand that diversification doesn’t always equal great returns.

Think about this: you’ve got all your extra cashflow in your diversified investments that is giving you a pretty decent 7% return. What you don’t think about is the car payment (3% of which is interest), the 10% interest on your credit card payment. So, in reality, your 7% gain is cancelled out by the interest you are paying to other people.

Now imagine if you eliminated your debt and could pay the interest on your car payment to yourself. All the sudden you’ve gone from putting your money at risk and hoping for a decent 7% return to being on the risk free road to creating more wealth than you ever could with mutual funds or diversified stock portfolios.

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