Ok, fine! I invested in gold, sorta (Diversification 101)

This post continues the discussion on investing in gold, by segueing to investing in general. In a previous post, I explained why not to invest in gold, because I think it’s currently experiencing a bubble in valuation. Then a friend wrote a guest post with an interesting theory that the price of gold isn’t inflated, rather the value of the dollar has decreased.

In this post I’ll begin to explain why a bit of precious metals investment may actually be a helpful thing, as long as you’re spreading your money around to a diverse array of investments.

Living the lifestyle I write about on this blog is saving a lot of money (it’s also increasing my quality of life…go figure!). In the old days, when I was doing the standard “save 10%” thing (and then spending the other 90% whether I needed to or not), it was pretty straightforward how to invest it: a little into the 401k and some into a savings account for short- or medium-term goals.

Now that The Foundry’s savings rate hovers around 50%, we’re stashing a lot more money away for a rainy day. As such, I’ve been doing some research about investing and decided that the “rule of thumb” portfolio* isn’t going to cut it any longer. I need a portfolio that…

  1. performs as well as a stock-heavy portfolio (over decades).
  2. spreads money over many different types of investments, in a calculated way, to decrease risk.
  3. takes the guesswork out of the complex tax implications of each kind of investment.
  4. most importantly, is simple to manage (I’m talking “minutes per year”).

I read a number of books on money and investing, each presenting what the author believed to be the BEST way to invest your money. But only one author was able to back up his claims with research into nobel-prize winning investment theory, and present it in an easy to understand format.

Find out which book in our next installment on investing…

*  The rule of thumb being “invest your age in bonds and the rest in stocks.” So a 30 year old would have 30% of their investments in a bond fund and 70% in a stock fund. That way their portfolio gets increasingly conservative as they near retirement.

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