Imagine for a moment that you step into an elevator on the 18^th floor of a building, the doors close behind you, the elevator begins a short-lived decent, and all of sudden the lights flicker out, the elevator stops and you lose phone signal. After a while, you start to feel anxious. You open the escape door on the roof of the elevator, pull your self up, and see that there’s only 1 cable holding you up – and no way out. Upon arriving back to the floor of the elevator you hear an awful sound and begin to feel shaking. You look up to find the 1 cable is unwinding. How do you feel? Who knows you are there? What can you do about it?… The answers do not sound good.

 Suppose, however, when you opened the escape door there were 20 or 30 cables holding you up. Now, how do you feel when that 1 cable begins to unwind? Obviously, much better. You hope you have time for someone to find you. Someone will rescue you.

 This is much like your investments. If you have only 1 investment and it begins to unwind, it is already too late. The ongoing news unfolding about the $50 billion Ponzi scheme pulled off by Bernard Madoff has undoubtedly left many individuals and families questioning their investments (especially those individuals and families whose only cable was Madoff’s 1 investment.) Others not invested with Madoff may even be moving everything to cash, CDs or annuities only simply out of fear. The problem with this scenario is they are getting into yet another elevator with only 1 cable. Anytime you hold only 1 investment, no matter how amazing (earning double-digits annually with Madoff’s 1 type of investment) or how safe (CDs or annuities) it may sound, you are severely increasing your risk.  Remember what your grandmother always said: Never put all of your eggs in one basket. (And yes…this includes cash!) You may be asking, how can safe investments or holding everything in cash increase my risk? Think about the longevity of your money in these types of investments. This is the first day of the rest of your Life and your family’s Life. How long do you need this money to last?

 Just like a homemade apple pie that must have the right amount of sugar, eggs, apples, flour, etc. to make it taste great; you must have the correct amount of the right ingredients in your investment portfolio to make it fit your long-term goals and offset risk. Too much of any one ingredient can spoil the recipe.

 Now, I could go into the technicalities of sensible diversification and tell you that your allocation should include a variety of market correlated and non-correlated assets across a variety of sectors, regions, market caps, economies and investment vehicles, etc., etc…. but  I suspect you don’t want to read all of these technicalities.  So the bottom line is: different types of investments perform differently and may reduce your exposure to a downturn in any one particular area-while improving your opportunity for a higher return over a long period of time. Although diversification cannot guarantee profit or protect against a loss in a generally declining market, diversification is used as an effective way to balance investment risks and rewards over the long-term.

 Today it is more critical than ever to know what your investments are and the amount of risk you are taking with each investment and with your investments as a whole. The wisest thing to do may not be simply “getting out of the market” now at possible market lows, leaving your money in cash or investing in CDs or annuities only. Once again, keep in mind that past performance does not predict future performance, but historically investors should have been buying rather than selling in previous market declines. The wisest thing to do may be to rethink the risk of your portfolio. I encourage you to get as technical as you need to be your advisor in order to develop a proactive plan that fits your long-term needs and goals. By the way… no matter what you think you might know about your money, risk, the economy, etc; check your emotions at the door and get help! It is ugly out there, which means it is vitally important to work with someone who is unemotionally attached to you and your money to help you live Life on purpose and not by default.