Ignore the Hype

Chapter 7You Must Practice Smart Diversification

Do you remember the decade of the 2000s? That was back when folks with the gift of perfect foresight were finally rewarded! After all, back at the turn of the millennium, your neighbor, Bob, whom you've nicknamed The Oracle, was correctly able to peer into the future and foresee that the next decade would offer two wars, two horrendous bear markets, two recessions, 17 consecutive interest rate increases by the Federal Reserve, and the worst financial crisis since the 1930s. Why, the only thing missing were plagues of locusts!

Those 10 years were the very definition of a difficult environment. Under those conditions, stock markets would undoubtedly collapse. Bond markets, buffeted by Federal Reserve rate increases, would suffer. And investors couldn't hope to make a profit. The savviest investors would definitely choose to sit on the sidelines and wait for a period characterized by less turmoil and more certainty.

Your lucky neighbor, blessed as he was with clairvoyance, surely would have profited from his priceless gift by completely avoiding the financial markets and sticking his money under the mattress.

The interesting thing, though, is that your neighbor, despite his gift, would have been far worse off for having avoided the markets. In fact, all those poor fools who couldn't foresee the wars and recessions and financial crisis would have ended the decade in a far better spot than The Oracle.

So, your neighbor, Bob, saw the ...