We all know the saying, “There’s no such thing as a free lunch.” Well, when it comes to investing, you really can get something for free. The amazing thing about this free lunch is that it’s available to everyone!

 Drum roll please…

…When it comes to investing, diversification is your free lunch.

Diversification is about spreading your investments over a range of assets, managers and markets. 

 You can reduce the risk of investing without sacrificing expected returns by diversifying. In other words, “Don’t put all of your eggs in one basket” — another saying you’ve no doubt been hearing all your life. That may not sound exciting but when it comes to investing, trust me, boring works a whole lot better than exciting!

 There is potential to increase how much money you make if you can pick investment winners. Unfortunately, virtually no one can do that consistently over any reasonable period of time. Anyone who tells you they can beat the market is kidding you and themselves and likely charging high fees for their supposed investment ‘skill’.

If diversification is your free lunch when it comes to investing, then reducing costs is your dessert. The great thing about diversifying widely is that it’s actually the cheapest way to invest. You can be a globally-diversified investor and be a part-owner of hundreds of investments here and overseas for an incredibly low cost, while reducing the risk of investing at the same time.

This works both inside and outside super. The benefits of reducing fees from 1% to 0.2% per year are enormous when compounded over decades. Utilise diversification, low fees, investing regularly and time together and you have an almost guaranteed path to wealth.

This is smart investing. It’s a scientific investment approach that works, yet in Australia most people’s idea of investing is buying an investment property and putting all their eggs in the one basket. Investment properties are high-cost, high-risk and the opposite of diversified. Investing in residential investment property is a very, very expensive lunch where the menu is very limited.

One of the great difficulties people face when it comes to investing is separating their emotions from their investment decisions. This is where having a financial coach in your corner can be hugely valuable. My job is to help my clients to learn more about the investment options available to them and then guide them towards the best investment strategies for their situation.

And investment properties are the perfect example of this. The moment people pause and realise that they can’t sell one of the bedrooms if they need any money, is the moment they realise that a more flexible and diversified approach to investing makes perfect sense.

If you’re concerned that you are not receiving a free lunch when it comes to investing, get in touch for a second opinion. Or if you’re looking to get started with investing, let’s make sure you get as many free lunches as possible going forward!

Cheers,

Daniel

If you’d like to find out more about how INDEPENDENT financial advice could help you manage cash flow, pay off the mortgage faster, get the most out of super and invest wisely, then get in touch on 0411 484 464 or head to wealthtrain.com.au.

Daniel McGregor is the man behind Wealth Train and is a member of the Independent Financial Advisers Association of Australia. This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided are general advice only.