Going long? Diversify!

After going back and reviewing all of my recent posts I came to one conclusion. I have not stressed the need to diversify a long term stock portfolio at all. In real life, any financial advisor worth his weight will tell you to diversify your long term investments in many different avenues. Investing in one single stock, commodity, or other financial instrument will cause two different problems.

One. If the item crashes in value, for whatever reason, your hard earned wealth will be going along for the ride.

Two. The flip side of that issue, if you place all of your money on one investment and that investment underperforms versus inflation; you will not be able to keep pace and when you move to retire you will not be able to afford a comfortable life.

Those are real life standard trains of thought. In Second Life the implications are much, MUCH less serious. However the same principles still apply. If you are investing for the long term, you do not want a single bad investment to cause you to lose everything you have or fall behind.

There are a few ways for long term investors to work around this issue.

One, use a brokerage firm such as LLC or NBC to do the investing for you, they are well versed in the markets and have a good idea how to find good SL investments, and will inherently diversity your investments so they can mitigate their own risk. These brokerage firms do come with a fee. However the level of expertise you should be receiving from the funds will far exceed the cost to you. You are paying the fees so they can find good investment for you, essentially they have done and are doing the work listed in option number two and are just charging you for their work. Weigh out the amount of time you have to find good investments, and see if you can commit enough time to be sure about what you are doing. Most new investors can’t or will not, that is where these guys fill the void.

(Just as an idea, I personally spend about 25 to 30 hours a week just to read forums, review financials and keep up to date, and I still don’t know everything.)

Two, there is a phrase among investors “do your own due diligence” or DYODD. This means, do the research yourself to figure out what investments (CapEx Stocks) work for your portfolio. Talk to CEOs, read financial reports on the company, read the forums, and read blog posts. Essentially, get a feel for how the company is performing; if communication with the CEO and his/her investors is low that is a big red flag. But not a deal breaker, they may be tied up IRL. Never assume anything, and always get as many opinions as you can. Then after you have a found a few good companies, spread your L$s among them.  This option requires the most work and risk but can be the most rewarding. This is not exactly recommended for people brand new to the market.

Third, invest your L$ into one of the Greek Funds. The Greek Funds are designed to spread the risk and the reward around so that it balances out and makes for a more secure investment. I am sure the brokerages will hate to hear this. But the Greek Funds are a great way for new long term investors to get into the investment scene. There are no fees except the standard trading fee and the fund is diversified by design. The issue with this method, and this is why I don’t think they will be much competition for brokerage firms, is the funds invest blindly or equally among all companies listed under their field no matter their performance or “feel”. This means they will have a reduced level of income compared to what you should be able to expect from a private brokerage firm, however the risk should be lower as well.

Pick your poison, investing long term on CapEx is tricky and as always only invest what you can lose, because ultimately this is a game.

Questions, Concerns, Comments, leave a message bellow.