All-or-Nothing Money Strategies

I have seen and heard this so many times, it is something I feel like I need to write about every so often, just so that others don't make this mistake.

So what is this mistake?  It is an all-or-nothing attitude when it comes to money and investing.  It actually amazes me how often I see it.

Let's say someone has $10,000 and they don't know what to do with it.  They inevitably say something like, "maybe I should put it all in stocks or maybe I should put it towards my mortgage or maybe I should buy some gold."  My response is, "why not do all three?"

It is even worse when it gets to larger sums of money.  If someone stumbles into, say, $200,000, then all of a sudden they have to do something with it.  They say, "I could buy a restaurant or I could use it as a down payment for 5 investment properties or I could put it all in a Swiss bank account or buy an annuity."  My response is, "slow down."

If you have some money burning a hole in your pocket, you don't have to put it all in one place.  It is called diversification.  For the above example of coming into $200,000, why not take a quarter of it and buy one investment property, take another quarter and open a Swiss bank account, take another quarter and invest it, and take the last quarter and keep it as an emergency fund?  Again, it is called diversification.

If you come into some money (a situation everyone would like to have) and you already have an emergency fund, one suggestion I have is to put half of it into a mortgage and the other half into gold.  Paying down your mortgage on a primary residence is a hedge against deflation.  You are locking in a return of whatever your interest rate is.  Buying gold is a hedge against inflation.  Why not balance the two out and split your money down the middle?

In conclusion, if you have money, spread it around.  Don't put all of your eggs in one basket.  I like the permanent portfolio for investing.  I also like the idea of buying residential real estate and renting it out, especially with the current housing market.  But do it slowly and don't dump all of your money into one area at one time.