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Diversification > Simplicity

Not exactly an attention grabbing title huh?

 

I know it isn’t, but bear with me – this is what’s on my mind this glorious Tuesday. I recently started using Betterments smart saver function as an alternative to CD’s and online savings accounts. My main reason for this is I’m personally betting rates will rise and I like the face those returns will automatically correlate to a rising rate environment.

 

But if I’m honest, the other reason I’m doing this is an addiction to diversification. That’s right, a good addiction in my opinion.

 

Addiction can be good.

 

 

No, not that kind of addiction. That is usually the bad kind.

 

Just the mere thought that addiction can be a good thing sounds funny, doesn’t it? It wasn’t that long ago that everybody in the financial world seemed to glorify simplification. You may have heard things like:

 

  • Keep all your accounts in one place so it’s easy to track.
  • Multiple banks are pointless unless you are over the FDIC limit (few people are).
  • The easier it is to monitor your financial picture the more successful you will be.

 

That third one I am inclined to agree with, but because of technology like personal capital, it’s so easy to manage multiple accounts that I will argue they are no longer a negative in any way.

 

On the contrary, they are a positive because of what it does for your mindset.

 

Mindset is key to this. Behavior trumps all in personal finance.

 

 

 

 

Seeing smaller balances grow over time and knowing your money is “well spread” will make it easier for most people to keep going on the saving and investing route. The same rules apply with eating an elephant, one bite at a time that is.

 

I’m not saying go crazy and have 40 different accounts with $10 in each of them, that would just be silly. But if your mind works like mine and you feel better with a little more diversification just go with it. At the time of this writing the smart saver program is set to return 1.78% at current rates.

 

That is nothing amazing and nobody will get rich off of those returns, but they crush the .12% that my local bank is currently gleefully bestowing upon me and I like the betterment platforms user interface. I’ll post on here at some point if my opinion on diversification ever changes, but don’t count on that post anytime soon.

 

One of my favorite personal finance books is “The Simple Path to Wealth” ironically, but if your goal is “True Financial Freedom” then the simple path likely isn’t for you.

 

 

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