You hear horror stories of people losing all their money on the stock market. The main reason this happens is that people don’t place their money in a variety of investments. Doing this spreads the risk of losing your money.
Basically, the golden rule of successful investment is to diversify your portfolio. This simple strategy is overlooked by 85% of household investors. This strategy doesn’t even rely on your ability to pick stocks. It relies on the principle of diversification. For example, you should divide your money between these types of investments:
- Property
- Bonds
- Shares
- Private equity
- Cash
- Any other asset class that interests you
Even if you love shares then don’t buy only stock in one asset class like utilities or banks or tech stocks. Industry stock prices move together so when one bank stock goes down the others all go down too. Most investors are comfortable allotting all their money to one investment. If that stocks goes up great, if not you are back at square one.
When you visit a financial planner the basis of every strategy is asset allocation. Every case is different but the one common element in every case is diversification. The principle behind it is this: As an example, allocate 75% of your money in moderate-yielding, conservative investments like income funds, enhanced cash funds and invest the other 25% in a selection of stocks. The moderate investments are the backbone of your portfolio. They should always be going up, with low risk. This will help offset the volatility you may have with your stocks. If your stocks go up then you realize larger overall gains.
Don’t be the person who complains about how they lost all their money on the stock market. Be one of the success stories who knows how the market works and how you made money, by having a diversified portfolio, focused on the long-term.
Information is for educational and informational purposes only and is not be interpreted as financial advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.
