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Lemmings have it right, diversify

The lemming gets a bad rap! Common error says that these arctic rodents commit mass suicide by jumping off cliffs to drown in the ocean below.

The lemming gets a bad rap! Common error says that these arctic rodents commit mass suicide by jumping off cliffs to drown in the ocean below.

The truth is that lemmings instinctively know when their population is getting too dense and will migrate to a new habitat.

During their migration, they have been known to jump from cliffs and swim to their new habitat, often to the point of exhaustion and, frequently, death. This is a far cry from suicide.

Lemmings are a lot like the stock markets. Their populations grow over time but periodically they get overcrowded and need to diversify into other territories.

In the end, the lemming population stays strong and continues to grow, as do the markets. The difference is that I don't see any "lemming shepherds" steering them around (read: stock pickers). They do pretty well on their own and so do the stock markets.

Now, on to Wall Street. Among many other disasters, you'll remember it as the place that packaged bad mortgages into even worse asset-backed commercial paper structures.

It's also the place where key executives receive obscene paycheques when they work there, obscene amounts when they leave their jobs and where they abandon capitalist principles to support socialist bailouts.

Wall Street is not just a place in New York though. It's a symbol for every institution and individual who claims that they have a better idea on how to package investments and which stocks to buy, hold or sell.

Here's the truth, though: analysis of the past century shows us that there is no benefit to trusting analysts and active stock pickers to build our portfolios.

It is far better instead to invest in the market as a whole, using highly diversified, intelligently traded, passively managed, low-cost investment products.

Investment gurus who back this approach include Warren Buffett, Jeremy Siegel, Charles Schwab, Peter Lynch and William F. Sharpe. We've had many, many financial crises over the years, and yet the forces of entrepreneurism and free markets continue to grow our wealth over time.

Investors are still standing at the edge of the sea, unsure of the global economy.

Eventually, they will need to take the leap again, restore the balance and watch their wealth grow again.

The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC. Richard is a senior financial advisor and branch manager with WealthSmart Financial Group/Manulife Securities Incorporated in Richmond.

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