Recently, a friend asked me how she could teach her teenager about portfolio diversity so that the lesson would stick with her daughter. I was stumped, because I couldn't remember if I taught my own daughter about the importance diversity plays in investment planning. If I did, the lesson wasn't that good or I would have remembered it! So I begged for some time to come up with an idea and I began to ponder the moments when I taught Cora about the importance of variety in her life.

A wide variety of boyfriends is good for Cora, because I don't want her to become too involved with just one person during this phase in her life; however, that connection didn't seem to fit this lesson because I didn't want to equate solid investment plans with volatile teenage relationships. A wide variety of life experiences could equate to portfolio diversity, but this comparison seemed inappropriate because life experiences often occur without notice, whereas investments require thoughtful planning. Then, I remembered that it's a new year, a time when people make all sorts of plans to slim down for a number of reasons?would the food pyramid offer a lesson on diversity?

In April 2005, the US government unveiled a new food pyramid with specific advice on serving portions and calories. This renovation focuses on food and exercise as preventative medicine, or the idea that a healthier individual may be less prone to chronic disease. This health could be achieved with a diversified diet that would supply needed calories along with the movement necessary to burn those calories. The nutritional guidelines, accompanied by a Web site that offers tailored recommendations, are aimed at changing American lifestyles which are deemed unhealthy on the average.

When this theory about diversity is applied to investment portfolios, the connection seems appropriate because unhealthy portfolios often are subjected to an imbalanced diet of stocks from just one sector - just as individuals subject themselves to unbalanced diets from just one food group (like chocolate?oops, that "food" seems to be missing?). Additionally, when an investor lets his or her portfolio sit like a couch potato or if that investor puts the portfolio through a vigorous and impractical workout without regard to long-term goals, these practices could also affect a portfolio's health. Yes, just as an individual might suffer from an irregular exercise routine.

Ok - now to break this lesson down to a specific example that's easily understood by a teen who can draw a comparison between a healthy body and an equally healthy investment strategy. A quick look at "My Pyramid Plan" at the USDA (United States Department of Agriculture) Web site shows that any individual can lock in a dietary plan according to age, gender, and current amount of physical activity. When I input this information about myself, I came up with a daily and weekly chart on how much I should eat from each food group, including a caloric goal. Additionally, the site advised me on how to diversify vegetables so that my body would receive what it needs from dark green, orange, and starchy choices.

The food pyramid, then, is broken down into groups much like the stock market is broken down into sectors. I could be healthier, according to the USDA, if I partook from all the food groups, and even healthier if I ate a variety of foods from within those groups. Accordingly, I could equate my portfolio's health by the number of sectors that I included in my investment strategy and with the number of different stocks I carried within each specific sector. I don't want to spend all my money on too many investments, nor do I want to blow my paycheck on too much food (especially on cauliflower), so I need to plan wisely and consider portions in my diet and in my portfolio that are affordable and wise at the same time.

The USDA realizes that many Americans are muddled in their ideas about portion sizes; otherwise, they wouldn't spend time on this issue. If you've dined in a restaurant recently, you might understand why many people believe that a portion should equal the size of a small land mass within an archipelago rather than an amount which can fit in the palm of a hand. Restaurants often offer poor examples on the amount of food a person should - or could - consume, and buffets knock rational choices out the window. The portion idea goes for investments as well, especially when the investor is a beginner, greedy or too eager, or when the investment budget is limited. Fortunately, BUYandHOLD offers a way to accomplish budgeted and diverse purchases so that an investor can meet long-range goals with their E-ZVest^sm strategies. Now, if only someone could tell us the best stocks for our portfolios and the portions that would satisfy a portfolio's appetite?

I don't know whether my friend's daughter will buy into this explanation for diversity, but I know that my daughter will understand. We've been through the "eat your fruits and veggies" routine a number of times, and my daughter knows why certain food combinations cause her to gain weight and feel poorly while other choices give her energy to burn. Hopefully she'll understand that the application of this diversification theory is just as appropriate when applied to her investment strategies. Then again, she'll probably think that I'm just drilling the "eat right" routine into her head again.

So, some metaphors can only be carried so far and I certainly know when to stop this one. Over the next few weeks I'll stick to investment choices in the stock market as I illustrate the diversity that these young ladies have at hand for their portfolios.

Until Then,
Linda Goin