Don’t Learn This Diversification Lesson the Hard Way

Andy Snyder|December 20, 2021

The politicians in New York City just did something really dumb.

They put a lock on another critical piece of the city.

Mark our words… they will regret it. It’s a good lesson for investors. It paints the scene of a growing and highly dangerous trend.

The city council voted last Wednesday to ban the use of natural gas in almost all new buildings.

Starting in 2027, new construction plans that include gas hookups will be rejected.

That means electricity will be the fuel source of choice.

It’s good for the environment, no doubt. The folks who track such things say that each year, it will eliminate emissions equal to those produced by 450,000 cars.

Put in less exciting terms, that’s like removing 13 commercial planes from the sky.

But the environmental effects aren’t what we’re here to debate. We like clean air as much as the next guy… probably more.

The problem here is one of centralization.

Proving that the current supply chain mess and the inflation that’s blowing up the economy have taught few folks the lesson they need to learn… New York has decided to double down on the idea.

Let’s get everything from one source, they’re saying. Let’s put all of our eggs in one basket and drag that sucker down the litter-lined street.

Take It Further

Folks with common sense know the flaw in this plan. It puts immense stress on an electrical grid that is overwhelmingly outdated and overburdened.

Critics say the bill was rushed through without adequate input. It was done, they say, solely as a way of signaling the council’s political thoughts on global warming.

Again, that’s not our point.

We’re interested in what all this means for your wallet.

You see, there’s a simple tie between what’s happening in New York and your money.

We’ve all heard the cries for diversification. The mainstream money world loves to tell us to spread our money across a slew of asset classes. You’ll surely see a myriad of end-of-year stories telling you to study your allocations and reset them with the start of the year.

It’s fine advice.

But it doesn’t go far enough.

There are too many biases in the way we’re told to diversify. Few investors do it like they’re supposed to… like the math begs us to.

Instead, they do what the folks in New York did. They make emotional decisions based on what feels right and what they “should” do.

The truth is, diversification is supposed to hurt. It’s not about mixing your stocks across a broad array of asset classes. Done without logic or experience, that guarantees mediocrity.

Diversification – truly beneficial diversification – doesn’t shun what’s bad. It fixes it.

Pay attention here. This is where things get powerful.

Fix the Problem… Don’t Ban It

New York should not have banned natural gas because it’s dirty. That’s a lousy way out.

It should have created an incentive for the free market to fix the problem. The oil majors are making a ton of money by doing exactly that. If regulators would step back and let them, many of our pollution problems could be solved.

But alas, the folks in charge simply write words on a page and “solve” our problems… at least until the system breaks down and New York freezes to death.

Things are not all that different when it comes to your money.

True diversification means having multiple streams of income. That’s it.

It doesn’t mean purposefully mixing winners with losers in your portfolio. It doesn’t mean ensuring mediocrity by owning assets that rise when others fall.

It’s far more complicated.

Put simply, it means fixing what’s broken. It means shoring up the things that aren’t performing like they should.

If you want to get rich… this is the key.

What’s the “natural gas” in your life?

Perhaps your retirement income isn’t stacking up like it should… so you quit saving. Perhaps you’ve wanted to get into real estate… but haven’t because you don’t know how. Perhaps your spending is the problem… and you’re trying to patch things together by praying to make more.

Don’t write off what’s not working.

The true road to long-term success is to fix it. Get it right, and you’ll suddenly be twice as strong.

New York could have gone that route. But it chose the easy way out.

It will learn this lesson the hard way.

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