Many advisors recommend diversifying your portfolio but what does that really mean? To most it is buying a combination of stocks, bonds, mutual funds, index funds, and cash across multiple industries and markets. This could mean putting 15% of your money into international stocks, corporate and government bonds, mid and large cap stocks, and multiple industries (such as retail, technology, financial, materials, medical, food products, etc).

But this is only a small part of the picture and unfortunately where most investors stop. To truly diversify your investments you must use a newer way of thinking about diversification: Diversify your Life:

1. The first step basically includes the above information to invest 33% of your monthly or annual investment money into a balanced portfolio of stocks, bonds, funds, cash, etc depending on your age, investment goals, and risk tolerance. Note that only 33% of your money goes to these investments. The other 66% will not be invested in this way.

2. The next step is to take 33% and start a small business. According to the Harrison Group, a survey of more than 3,000 individuals worth over $5 million each showed 80% started or worked in small businesses making lump sums after many years (selling the business or an initial public offering of stock). References

Keep in mind that 50% of businesses fail in the first year and it takes 2 years to get a business off the ground. So, you should start out slowly by spending $300-$500 to form a Limited Liability Company LLC to limit the impact to your personal finances in case the worst happens, $800-$3000 for a web site design and business cards. This is $1100-$3500 of necessary startup costs but any remaining startup costs are technically not necessary as you slowly build your business until you begin slowly building clients. DO NOT spend $50,000 to purchase or rent a store and DO NOT spend $10,000 on Search Engine Optimization or other marketing efforts until after 2 years have passed and you have determined that your business can be successful.

3. Take the other 33% and invest in a 30 year, fixed mortgage for a reasonably priced home. If you already have this, invest the 33% in remodeling the bathrooms or kitchen or curbside appeal/maintenance of the house with the goals of selling for a profit every 2-10 years depending on your family needs.

4. Please do not forget to donate to charity and to helping others. Whether you believe in God or Karma this charity will provide dividends.

I welcome your comments.

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