Diversification carries the investor through rocky times. It doesn’t guarantee that he or she will never lose money. But what it does is give one a better chance to lose less in bad times. Example: Markets were generally down in the United States in 2008 some 35 percent to 40 percent. I know some people who actually lost 50 percent and they vowed to never invest again.

Did my wife and I, who had bonds as well as stock funds, take a hit?

You bet. But we were “only” down some 25 percent because we were diversified and had not put all our investments in one thing, or asset category. We had a fair amount in bond funds. Our losses in 2008 were painful, but not nearly as painful for many other investors.

Keeping Your Head Above Water

So we survived into 2009. That’s when markets recovered and we got a lot of our losses back from the previous year. Indeed, the stock market over the last decade until the recent crisis of early 2020 has been a great place, but it doesn’t always do well.

Recently more bad times have come for the stock market, but I don’t know exactly when they will end and neither do most people. It will depend on some factors that are unpredictable. Example: Who could have predicted a couple of years ago that the Coronavirus would have such a profound effect on the economy and markets?

So, since the stock market tends to go down one out of three years, and since the stock market until recently has been in a long-term bull market, the odds are good that, sooner rather than later, we’ll get a bear market. Indeed, now, owing to the Coronavirus, we were in one, but it turned out to be a short bear market, only lasting a few months.

Still, diversification, which helps limit losses in rocky times, usually works for the patient investor who is a long-term player, especially younger or middle-aged investors, with a long investing time line. Indeed, for the young investor, with 30 years or so in front of him or her, a bear market at the outset would be good. You would be buying a lot of shares at discounted prices that would later be big winners whenever the bull market came roaring back.

Where’s Your Investing Roadmap?

A long-term plan is a sensible, reasonable approach. The plan doesn’t have to be anything huge. It can be a one-page or less plan. It doesn’t even have to be a written plan. It can be a mental commitment to saving and investing in a certain way that you can state in a few sentences.

And it can and should be reviewed at least once a year. But you should have some kind of a plan. And it doesn’t matter that you’re starting with nothing or little more than nothing. What’s important is to start as early as possible and to have the discipline to survive and invest through bad times and good.

The great investor Sir John Templeton began with nothing, but he and his wife made a commitment to save and invest large amounts of their income no matter what. For more on this see the book “Investing The Templeton Way” by Lauren C. Templeton and Scott Phillips. Templeton and his wife actually, at one time early in their marriage, committed to investing 50 percent of their income. But there is no need to be that radical. In most cases, committing to ten percent at the beginning of a plan would be a good start. Then as you begin to make more and can afford it, adjust the investment percentage upwards.

Some sixty years after beginning their investment plan, the Templetons were billionaires. So make a commitment and a plan. And be sure to include any other family members who would be significant players in achieving wealth. Husbands and wives—pulling in the opposite directions—often ruin any chance for financial independence.

Starting with Almost Nada

When my wife and I were married we had less than $5,000 in assets, which is the same perilous position of tens of millions of Americans today. We had a used car. It was on its last legs and it was draining our cash. We didn’t need it and got rid of it. The latter is a case of how playing defense helps you play better offense. With no more car insurance and other maintenance costs, we had more money for everything, including getting serious about our investments.

Thank God that our marriage was strong enough that we could agree and successfully execute a financial independence strategy. This agreement was critical. We both spend money in a sensible manner. We both have to save or invest to achieve anything. We both have to make the money. We both have to agree on a money strategy. We both would prosper or fail together. We both ultimately won.

Our plan was to get rid of our car. I was delighted to actually get $100 for the sale of the clunker. We put the money we were no longer spending on the car into investments every month, which was a big payoff. We also signed up for our retirement plans at work. Our employers were willing to match our contributions to a certain extent. And we tried to save enough cash for a down payment on an apartment in a nicer neighborhood.

It was seminal event in both of our lives. We would own the apartment. It was the first time we owned and not rented our housing. That meant our apartment represented another kind of saving. It was an asset that we could sell our apartment someday or possibly borrow against it. It was also an asset that the government would partly subsidize through tax breaks. We had never received these breaks on our housing prior to that because previously we rented.

The nicer neighborhood had better shopping, less crime. We would be able to live comfortably without a car. That would be a huge saving; freeing up much more money for savings, investments and also fun things such as taking trips, which sometimes included renting a car.

Going from Renting to Owning

When we started our new plan, we were renting an apartment, owned next to nothing and lived paycheck to paycheck, even though we were both gainfully employed. The previous sentence describes how millions of people live through most or even all of their lives. That’s even though many of them, at least at some point in their lives, earned good incomes.

What happened?

Unfortunately, in the United States and in some other developed nations, the cultural emphasis is on consumption. That means very little of the average person’s income, no matter how healthy, finds its way into investments that will make them independent. People are, in effect, making a bad bet. They are betting that they will always make great or at least decent money and won’t ever happen to worry about putting money aside for a rainy day or for a time when they won’t have big paying jobs. Yet that’s something that happens to most of us. These people are take big risks.

To you, the person struggling for a better financial life so he or she can provide for others, I say: I want you to have what we have today. My wife and I now have financial independence as well as a fair amount of control over how much we work or don’t work.

Leaving the Rat Race and the Ratty E-Train

I quit my full-time job a number of years ago when I was 58. I did it for a number of reasons but possibly the most important was this: I could afford to do it even though I had never made big money. Finally, our assets and healthy financial situation would let me become a freelancer.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post.

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