With the wild swings in the nearly all areas of the stock market and other investments over the past several months, you might be wondering if it was worth all that trouble to diversify your investments.  After all, the much-heralded mutual fund has pretty universally taken a beating.  I know that every fund I own has been battered pretty severely.  What good is paying mutual fund fees if you end up with a crushing lost just the same?

You’re missing the point

Imagine, for a moment, a different scenario.  Say a year ago, you had decided to put your money solely in Bank of America stock.  A pretty safe bet, by nearly all measures.  This way, you get to avoid those nasty mutual fund fees, and get the best bang for your buck.  Once you purchase the shares, no more ongoing costs, and all the gains are yours.  Neat!  Of course, BAC has tanked spectacularly ( down 87% ) in the last year.  Not very many funds ( if any ) are down by such a large percentage.  So diversifying didn’t help your money grow in this instance, but it does reduce your losses.

Look at the even bigger picture

So, mutual funds didn’t save you.  Funds are ETF’s aren’t the only method of diversification – just the most common one.  When you’re investing for the future, you need to own all sorts of different types of investments.  Here’s what I have in mind:

• Stocks ( Individual securities as well as funds, across different industries )
• Cash ( Yes cash is an investment! )
• Precious Metals ( as a hedge against inflation / USD performance )
• Real Estate ( Your own home, and possibly rental properties at higher wealth levels )
• Own a small business

Recessions hurt – and depressions hurt worse.  Your net worth will be affected – it’s just a matter of how much, and whether or not you can recover.  Don’t think that diversification will always make you rich, no matter the circumstances, because it won’t.  But if you have your hands in a lot of different pies, you have a much better chance of rebounding more quickly from a setback.