Diversification Explained – Part 2

Diversification is good for you.

God’s wisdom is greater than all of man’s. Ultimately, we must put our faith in the triune God and abide by His commands for our good and His glory. One of the financial principles he gave us is diversification. Austin Pryor, a friend of Crown and author of the book How to Make the Right Investing Decisions, wrote this: “The right investing decision is one that’s prudent under the circumstances. Does it pass the “common sense” test? How much of your investing capital can you afford to lose and still have a realistic chance of meeting your financial goals? The investments that offer higher potential returns also carry greater risk of loss. The right portfolio for you is not always the one with the most profit potential. For example, it’s usually best not to have a majority of your investments in a single asset or security. For that reason, people who have large holdings of stock in the company they work for often sell some of it in order to diversify.  If the stock doubles after they sell it, does that mean they did the wrong thing? No, they did the right thing. After all, the stock could have fallen dramatically as well as risen, just ask the former employees of Enron. What would a large loss have done to their retirement planning? The right investment step is the one that protects you in the event of life’s occasional worst-case scenarios. Now generally, this moves you in the direction of increased diversification.” That’s great advice that we should apply to all our financial decisions.

If credit card debt prevents you from investing, let Christian Credit Counselors help you. They’ll create a debt management plan specifically for your needs. For more information visit crown.org/ccc.