Am I Diversified & How Well?

[adioking]

I have 1/3 of my portfolio in stocks; Apple Inc., Google, St Judes, General Electric, Goldman Sachs, nVidia, Microsoft, Research in Motion, Wells Fargo, & Genzar.

I have 1/3 of my portfolio in money market funds.

I have 1/12 in a 20% interest 1-year note.

Another 1/12 is spread across several retirement funds.

Another 1/12 goes to a life insurance policy.

The remainder is liquid cash for operating expenses and personal expenses.

I am in the market to own a home in 2009.

Am I diversified and what else might I consider adding? Gold? Oil?

[pokerprop]

Having gold in an accessible form is usually a good idea.

A couple of my friends with too much money and time are nuts about this and actually go opening up safety deposit boxes all over the world. Hell I wouldn't be surprised if they've also buried them and included a treasure maps visible only with special glasses on the back of each page of their wills. These two are completely insane though and worth hundreds of millions. There advice about keeping some money in coins though does make sense.

[Lenny]

"I have 1/12 in a 20% interest 1-year note."

Can you let me know where to find something like this

[Steve]

I am intrigued about the gold market right now. If you look at the two-year trend, it started out in between 550-600 per ounce. It reached a high last summer, reaching over $1000, and now it's back to around 775. I heard countries are buying up gold reserves right now, so it might be wise to follow. You are buying in the middle of a downward trend, so that makes it attractive as well. I guess we'll see what happens, but it looks like a good, long term buy.

[Hazo]

Fairly sure my mother had the chance to buy at around 300 years ago... missed the boat there!

[ArthurPAS]

I have 1/12 in a 20% interest 1-year note.

I, too, would be interested in finding an investment vehicle of this sort!

[KevinG]

I'm a big Dave Ramsey fan and agree with most of his advice. Here are the basics -> http://www.daveramsey.com/etc/cms/in...35#mutualFunds

[Georgia Poker]

"I have 1/12 in a 20% interest 1-year note."

Can you let me know where to find something like this

I'm guessing he loaned someone cash to be paid back with 20% interest in twelve months.

[Robert]

Check out Prosper.com for returns like this. Its a person to person lending system where individuals lend to other individuals and your return is based on your risk tolerance. You can invest in very small amounts across many borrowers and lower your variance.

[adioking]

I'm guessing he loaned someone cash to be paid back with 20% interest in twelve months.

It's a person to person type of note between myself and a very close business associate. Offers like these don't come along very often, and be careful if you ever find anything above this rate. If it sounds too good to be true, then it usually is.

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Charles Ponzi

Hart Preston//Time Life Pictures/Getty Images

Charles Ponzi pours cognac for potential marks. Today, he would be a hedge fund manager.
TMQ Founds Money-Management Firm, "Charles Ponzi Associates": With stocks and money on many minds, consider that athletes often get bilked of large amounts they hand over to "financial managers" who are con artists. According to the NFL Players Association, since 1999, NFL players have been bilked of at least $42 million by quack "financial managers." Here is an Associated Press report about six former NFL starters who filed litigation following the conviction, then jailhouse suicide, of a "financial manager" who took their money and spent it on himself, rather than investing the funds, as legitimate financial managers do. Sometimes highly paid pro athletes are little more than teenagers emotionally and in their knowledge of the world, and can be taken in by fast-talking swindlers who claim to have secret investment formulas that double money in a year. What a crock: There are no secret investment formulas.

Fast-talking guys snow their marks with mumbo-jumbo about hidden patterns in the movements of stocks or hush-hush tricks for outsmarting the real-estate market. Such strategies could represent a path to supra-normal returns only if the fast-talking guys had figured out something no investment banking firm or MBA in the world had ever thought of before -- and what are the odds of that? If there actually were secret investment formulas, they would not be in the hands of guys who are hustling up business at parties. Goldman Sachs, which still exists, would quickly write a $1 billion check to purchase any actual automatic-success investing formula.

Athletes are not the only ones who fall for thieves claiming to have secret investment formulas, when what's really happening is a Ponzi scheme. Think about the sort of person who says he possesses a sure-fire money-making secret. Why is he offering to share it with you? If anyone actually had a sure-fire double-your-money secret, he'd use it to make himself rich while keeping the formula to himself -- so that it would not cease being effective! Here is an Atlanta Journal-Constitution report of the conviction of a swindler who claimed a sure-fire money-making formula, promised incredible returns to gullible wealthy investors, then spent the cash on himself. He had a secret, all right. The secret: He was a criminal.

Even people who ought to know better seem vulnerable to claims they can attain quick, outsized returns based on astonishing secret knowledge. Here, a con artist was just convicted of swindling well-to-do Washington, D.C., clients of more than $1 million, claiming he possessed a secret real-estate investment formula that produced instant huge returns when, needless to say, he was simply pocketing the investors' money. (The Washington Post reports one of the people who fell for the swindle was "an analyst for Freddie Mac," who lost $25,000. Great, a Freddie Mac officer who did not detect an obvious real-estate con job. Surprised they didn't make him CEO.) Right now, supposedly savvy Wall Street investors are losing their shirts because they signed up for debt-backed deals that seemed too good to be true, and were. Many people seem to exhibit a subconscious desire to believe that wealth is found not via hard work or some useful innovation; rather, by knowing amazing insider tricks. Consider that hedge funds have become super-trendy by telling the rich they can attain extra-high returns using the hedge funds' confidential econometric insights. In 2006, hedge funds returned 13 percent after fees while Standard & Poor's index funds, a plain-vanilla investment, returned 14 percent after fees. Of course it is possible to get lucky and score a big return on an investment. But there are no secret investment formulas. Anyone who claims to possess one is a con artist.

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Ferrari

Bill Pugliano/Getty Images

If your "investment advisor" drives one of these, pull your money back immediately.

Pro athletes, or others who suddenly come into money, may indeed need help managing their accounts. Those in this situation should retain a legitimate financial manager from any of dozens of reputable firms -- Vanguard, T. Rowe Price, A.G. Edwards, there are plenty. If you hand your money to some guy you met at a party who says the reason he drives a Ferrari is because he has an investing secret -- the Washington con artist liked to show marks his brand-new Corvette -- you might as well be tossing that money into an incinerator. Here's an easy test: Any financial adviser who promises more than a 16 percent annual return is a fraud. Why that number? The top money administrator of our era, Yale University endowment manager David Swensen, has posted a 16.3 percent return for the past decade. That's fabulous. That is world-class money management. Yet con artists snow athletes, celebrities and others who have come into money by promising 50 percent annual returns or more.

Then again, even if you've come into money, chances are you do not need a financial adviser. Follow this non-secret strategy that turns on buy-and-hold -- buy-and-hold being the strategy endorsed by Warren Buffett. Place $100,000, the maximum federally insured amount, into a CD, to have some money that will always be secure; max out whatever retirement instrument you qualify for; ignore gold, art and similar investments that are volatile; ignore commodities options, short selling, derivatives and similar complex investments that often trip up even specialists; ignore anything that's "securitized" (assets packaged into securities, there is no chance you can evaluate the underlying assets); buy real estate or real property only if your plan is to hold it for many years; place the remainder of your funds in a plain-vanilla 60-40 Standard & Poor's index fund (one that invests 60 percent in blue chip stocks, 40 percent in corporate bonds and Treasury bills); buy that fund from any reputable investment firm open to the public; let the money in the 60/40 fund simply sit there, regardless of what's happening in the markets. For goodness sake, don't make frequent stock trades trying to "beat the market" -- studies show that only about a third of investors and brokers who actively pick stocks do better than simply buying and holding the Standard & Poor's. For goodness sake, hang up on anyone promising "confidential tax avoidance strategies" or "a once in a lifetime opportunity." For goodness sake, never deal with any funds or money managers who say they use "secrets" or have "exclusive information." For goodness sake, don't purchase real estate, or any form of real property, thinking you will "flip" it. For goodness sake, don't panic and sell just because the market is falling. If the market is falling, do nothing -- at some point the market will rise. A few years ago, Buffett had his brokers calculate how Berkshire Hathaway would have done had the company not made a single stock trade all year, and merely held its positions. The answer was the company would have come out ahead. This paragraph contains all the investment advice most people will ever need. Send TMQ a one-third percent commission when you get a decent return and don't lose any money.