Diversify or Perish
Preservation of Capital
As you may or may not be aware, we are in the midst of a bear market. Every indication is that the stock market will continue its downward slide for the next few months, if not longer. This is a blessing and a curse.
The curse: Your portfolio becomes worth less than it used to. Nothing hurts more than seeing you hard earned gains shrivelling before your eyes. Your "net worth" is being negatively affected and it is painful.
Please keep in mind - you only lose money if you sell. If you do not sell anything you realize no losses. Your stocks continue to earn dividends and you are in "business as usual" mode. If you are following my plan, this is a temporary situation and is good for one reason:
The blessing: Stocks are on sale!
Your dividend re-investment plan is getting you way more bang for the buck. Your ROI is higher and your yield is higher. You are purchasing more stocks for the same amount of money and thus, your dividend is higher. If you are invested in good blue chip stocks, this dividend has not changed or has actually gone up, so you are now earning way more with each stock you buy. Not a bad deal.
So either way, you are fine. If you have the time.
Time
So what if you are in the later stages of your financial journey? Like me, you are very reliant upon not only dividends but on the marginal value of you portfolio. Your ability to leverage what you have is diminished by the lower value of your stocks. This can create a problem, especially if you are ready to retire.
I personally have weathered the storm of many stock market "corrections" over the years and have been fortunate to be able to hang on, persevere, and allow my portfolio to climb back to even greater levels as I dollar-cost-averaged my way to prosperity.
However, due to my age and my plan, I got out of the market 6 months ago and have moved my money to other investing platforms. Why?
Preservation of Capital.
I wanted to put my money to work without the fear of it losing its value. I needed it to remain intact so I can plan my retirement and my strategy based on real numbers and less speculation. My situation is, I don't have the time to recover anymore. I need the money to be here, now. So I changed my plan.
I now am invested in a few different things, most of which allow me to sleep at night.
I am fortunate to have made some good connections over the years and I am privileged to be able to invest my money in a few private investing deals that are only available to a few people. This is great for me, but how does this help you?
Peer to Peer lending
I have a good percentage of my wealth invested in peer to peer lending. This is a platform whereby people underwrite loans for other people who need them and the broker just takes a small percentage of the transaction. Instead of going to a traditional lender, like a bank, you can apply for a loan through a service like GoPeer and be approved based on your credit rating just like anywhere else, but the HUGE difference is, you will be approved by your peers, not the bank manager. If you are high risk, you will pay a high interest rate. Then, it is up to investors like me to decide whether you are worth the risk or not. This is amazing! It is like having thousands of different loan officers with thousands of different opinions and risk tolerances to asses your situation and decide whether to underwrite your loan or not.
As a borrower, this is great because it is a way to get a loan in spite of bad credit or being over leveraged.
As an investor, this is great because you get to decide your own risk vs. reward comfort zone. You decide which loans you will fund, and then decide how much you want to invest in each one. You can invest as little as $10 on any given loan and you are in the drivers seat. The lending platform does all of the dirty work, including chasing down the delinquent accounts.
From a "preservation of capital" point of view, this is perfect. You get back your initial investment PLUS interest over the term of each loan. In the end, you have not had to worry about the fluctuations of the stock market or the possibility of a dividend being cut or eliminated.
If you are interested in taking a look, I am offering a referral bonus. Using the link below, you can sign up to be an investor with GoPeer and you will receive $30 towards your portfolio!
Of course, the risk associated with this is quite apparent. What if your "peer" defaults on the loan? Well there are some recovery mechanisms in place but you generally will have to take the hit if that happens. The higher the risk, the higher the reward. Each loan is given a grade from A+ to E- . The interest rate gets higher as the rating goes down, so you choose which ones you feel you can take on. It is up to you.
The other downside is liquidity. You cannot withdrawal your funds before the end of the loan term. You are locked in to each loan for the duration. This is not a terrible thing, but worth noting.
So if you are wanting to become a lender, and put your money to work, this may be a good option for you. If not, carry on. I am not a financial advisor, just a dude sharing his financial adventures (<-see how I snuck that disclaimer in there?)
If you are not familiar with my investing strategies I encourage you to read my books or take my course. Every bit of information helps. You work hard for your money, wouldn't it be awesome if you could make your money work hard for you?
