The other night I was watching the latest episode of Jerry Seinfeld’s online web series, Comedians in Cars Getting Coffee,when I had a couple of thoughts. First, I thought about how impressive it is that despite the gazillions of dollars Jerry’s made, he still likes working on creative, smaller scale, projects. Then, I thought about how Jerry would have made a pretty good financial advisor if he hadn’t pursued a career in comedy and entertainment.
In each episode of Comedians, Jerry does a great job of connecting with his comedic guests, figuring out what makes them tick, and what’s important to them – an important aspect of being a good financial advisor. And while I don’t know Seinfeld personally, I have a hunch that if he was a financial advisor he would embrace one of the cornerstones of good financial planning – having a well-balanced and diversified portfolio. Look no further than his prior work on Seinfeld as proof.
Who can forget the hilarious Seinfeld episode, titled The Opposite, in which Jerry happily observes that things always balance out for him, prompting Kramer to start calling him “Even Steven.” Jerry’s optimistic and confident view that something bad will likely be followed by something good enabled him to take things in stride; like getting dumped by his girlfriend. When she tells him that she doesn’t think they should see each other anymore, he cheerfully tells her, “oh, that’s okay…no it’s fine, I’ll meet someone else…you see, things always even out for me.”
In personal finance, we aim to achieve the same level of confidence in our financial future by having diversification and balance in our portfolios. In doing so, we accept that just like in life, not everything goes well all the time, but if we have balanced lives we can better deal with adversity. In portfolio management, we acknowledge that we are not smart enough to know exactly what will go up in value and when. So, we create balance by diversifying our wealth into different asset classes (i.e. stocks, bonds, cash, etc.). Having a diversified portfolio brings us comfort that if one asset class is losing value, another asset class is likely gaining in value. That is why financial advisors look to include various asset classes whose returns are not highly correlated with each other in a well balanced portfolio.
Of course this isn’t a perfect analogy. Jerry’s balancing act was a zero sum gain (meaning he always came out even); whereas, when it comes to our investments, the goals is often to build wealth not just preserve it.
Take a couple of minutes and watch some highlights from that brilliant Seinfeld episode here.