In Downton Abbey’s season premiere this month, Lord Grantham learns that the family has gone bust – that the bulk of the Crawley fortune is gone. As it turns out, Lord Grantham (aka, Robert Crawley) had put nearly all his crumpets in one basket: He had invested heavily in a Canadian railroad, which flew off the tracks, so to speak.
So where did Crawley go wrong? What can you do so you don’t take the kind of financial misstep that puts your wealth at risk like the Crawleys? Consider doing the following when looking to build your portfolio.
Diversify your investments
Crawley ignored one of the cardinal rules of investing: diversify. As Warren Buffet once said, “Diversification is protection against ignorance.” Adds Forbes, “When it comes to investing, we’re all a little ignorant because none of us knows the future.” According to Forbes, a major part of diversity means having a mixed portfolio: stocks, bonds, cash and possibly real estate and commodity investments. And, we might add, adding savings accounts will help make for a balanced portfolio.
Diversify within asset classes
Crawley’s folly might not have been so great had he at least invested in more than one railroad. Instead, he let most of his money ride on one company. “The biggest mistake people make is having too much (more than 10-15 percent of their portfolio) in their company stock,” says Forbes. “Any individual stock can go down even if the stock market as a whole is going up.”
Avoid the herd mentality
“Investing can be scary, so it’s natural to want to stick with the herd,” U.S. News & World Report points out. But, the publication adds, “The herd is reactionary. It doesn’t make the safest or best investing decisions.”
Build your savings
There are plenty of reasons why you should shore up your savings. One crucial advantage of including savings accounts in your portfolio: The FDIC insures your bank account to $250,000, the full extent currently allowed by law. Plus, an online bank like Ally can offer top interest rates on your money. At the very least, you may want to consider opening up savings accounts for goals such as home ownership, education and retirement. Plus as Bankrate notes, you should definitely have an emergency fund to tide you over in case of job loss, illness or other major unexpected costs. No doubt the Earl of Grantham wished he had one now.
Do you have a well-balanced investment portfolio? Do you consult a financial planner before making major financial decisions?