The Wealth Code 2.0: How the Rich Stay Rich in Good Times and Bad

Chapter 6

True Asset Class Diversification

In the beginning, I introduced a chart of all the investment classes into which you can invest your hard earned money. I talked about why the Olympic basketball team could still win the gold medal even though one of its stars, Los Angeles Laker Kobe Bryant, was not on the court.

The goal of this chapter is to present a new common sense approach to portfolio diversification that is easy to understand but is usually not recommended by the Wall Street crowd.

The General Asset Classes

There are simple descriptions for each of the general asset classes (see Figure 6.1). These descriptions are meant to keep you reading by providing a basic understanding of each asset class, and building on your knowledge without bogging you down with nitty gritty details. My goal is to leave you with the big picture and a general comprehension of The Wealth Code. More detailed discussions of each investment class are provided in Appendix B, after the full concept and case examples are presented.

Figure 6.1 All Possible Investments

Static Stocks, Bonds, Mutual Funds

This category includes any stock, bond, mutual fund, or derivative that is held longer than one year. I call this the-hope-and-pray leg on the financial table. The vast majority of investors only know this asset class. This class tends to do well in bull markets. The problem since 2000, however, ...