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Software as a service (SaaS) stocks just looked like your average freshman leaving a gen chem exam. Unfortunate that is.

Zoom, Salesforce, Shopify, etc., the darlings of the pandemic boom, are down 20-30% in the past few weeks. The broader tech sector is bleeding.

There are plenty of reasons that could factor in, but one main one is that AI is able to write code. Really fast. It writes code really really fast.

So if a dude empowered by a bag of Doritos, Celsius, and a MacBook can create complex software, what is preventing that same Dorito loving dude from whipping up the next Zoom or Salesforce?

Honestly a lot but you get the idea.

Boohoo software stocks but realistically the takeaway is that pretending AI doesn’t exist is not a strategy in the economy, and in the workforce.

AI presents a lot of opportunities for good and plenty of problems, but it is here and is going to affect your investment portfolio and your job, so don’t ignore it.

And also don’t have a ton of SaaS stocks in your portfolio because that’s a rough choice right now.

Diversification means spreading your money across different types of investments so that when one thing crashes, your whole portfolio doesn't follow it off the cliff. It's the financial version of “lemme shop around.”

Let's clear this up with examples, because this is where most people screw up.

Different stocks ≠ diversification.

Having a bunch of stocks of the same type (tech, finance, etc.) is called being “concentrated.” When you're concentrated in one sector, you're basically making a single bet with your entire portfolio.

If that sector crashes (like SaaS stocks just did) you lose 20-30% of your money in one bust, even though you "owned multiple stocks."

The 2000 dot-com crash wiped out people who owned ten different internet companies. The 2008 housing crash destroyed portfolios full of banks and real estate.

Different disasters had the same lesson: concentration kills. Not actually, but financially and emotionally.

Well I’m so glad you asked. There are three main ways:
1. Across sectors: Don't just own tech. Mix in healthcare, consumer goods, energy, and finance.

A simple starting point is total market index funds like VTI, ITOT, or SCHB. These ETFs automatically give you every sector in one purchase.

2. Across geography: Buy outside of the US. International stocks (funds like VXUS or IXUS) give you exposure to Europe, Asia, and emerging markets.

3. Across asset classes: Bonds tend to go up when stocks go down (they're negatively correlated). Real estate (via Real Estate Investment Trusts or REITs) moves differently than tech stocks. You can look and funds like BND, AGG, and SCHZ for bonds and VNQ and SCHH for real estate.

A balanced portfolio might look like: 50% U.S. stocks, 30% international stocks, 15% bonds, 5% real estate. Though this can look different for each person. When one piece drops, the others cushion the fall.

Disclaimer: I own Vanguard index funds like VTI, VXUS, BND and VWO so if you buy these it may in some quantum, minuscule way benefit me. So to cover my butt I’m putting that out there.

Empower shows you where your investments actually are all in one place.

It’s a free tool that connects to all your investment accounts and breaks down what you own by sector, asset class, and geography.

It's especially good at revealing when your "diversified" portfolio is actually just the same five companies in different funds.

If you have all your investments under one brokerage, they probably provide a simplified version of Empower’s product. For instance this is Fidelity breaking down how I really am not diversified.

I’m working on this I do not recommend it.

Also, quick reminder that I am not sponsored by any of the tools I note here. I wish I was! These are just the tools I use.

If you aren’t invested yet, this is a friendly (and slightly pushy) reminder to START INVESTING. 

If you can afford to. Never invest at the expense of your financial security.

But you can invest with as little as a dollar, and if you need help, respond to this email! I reply ;).

If you’re already invested, make sure you own more than just one stock, and preferably 100s of stocks (index funds remember?). 

And you can email me about that too. :0

Thank you so much for being a part of this newsletter. I am grateful to write to you weekly and I hope this helps you feel more confident with your finances.

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