Diversification

We had a conversation with a friend the other day, about how to diversify one's portfolio properly. Despite how we may sound on occasion, we don't believe that having all one's wealth in anything -- even precious metals -- is a good thing. We're bullish, but we're not that bullish; when we start hearing 'sure things,' we get nervous... and we don't want to sound like the pushers for Bernard Madoff. The Uncle Bernie Affair is a good example of, shall we say, over-bullishness.

However, there is more to diversification than simply investing in multiple sectors of an economy. The likelihood of any one scammer, like Mr. Madoff, making off with one's life savings is decreased if one keeps any one investment to an acceptable percentage of one's total assets. We remember the stories of the people who gave everything to Mr. Madoff, only to lose everything... and we can't really feel sympathy for them. Greed got the better of them, and lo, the price of such greed was revealed.

We are often worried that, despite our best efforts, our investments may be in the loving arms of someone similar to Mr. Madoff. In the era of Peak Scam, one cannot be too careful. So, we are looking at more than just diversification within one economy: we are looking at multinational diversification, albeit on a small scale.

Why, you ask? Well, having all one's money is U.S. Dollars, or euros, or pound sterling, or Japanese yen, is effectively the same as giving all one's money to Uncle Bernie. It's betting the farm on that particular nation's ability to hold together and defend its national currency and economy. We are not at all confident enough in any one nation to have all our assets valued in its currency... and subject to its political caprices.

It's a question of scale, to be sure; one needn't have a ranch in Argentina, a fishery in Iceland, and a factory in Russia. However, we feel it is a prudent idea to at least have some assets outside of one's nation of legal residence. International diversification will be increasingly important in the years ahead, and, as we mentioned, it can be done on a small scale, even for the average individual.