The Financial Peace Planner by Dave Ramsey

Author:Dave Ramsey
Language: eng
Format: epub, azw3
Publisher: Penguin Group, Inc.
Published: 1998-04-28T16:00:00+00:00

The Power of Diversification

Investments are like manure; they work better when you spread them around. That’s what diversification does for you. It spreads out your investments, giving your money several places to grow. That way you decrease your risk; and in the end, you typically make more.

The graph on page 149 illustrates how diversification works for you. Two investors have $10,000. Investor 1 puts all of his money into a 7-percent-interest-bearing account for twenty-five years. Investor 2 diversifies. He puts $2,000 under his mattress and spreads the rest over four accounts that earn varying rates of return. He, too, leaves his money alone for the next twenty-five years.

By putting his money into a single account, the first investor’s $10,000 grows to $54,274. The second investor’s money, on the other hand, grows 77 percent more—to $96,280—because he spread his money around. He even lost $2,000 in a deal!

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