OK, this article will start with the cheapest piece of advice you will receive this year. In fact, it will make you money. At the very worst it will stop you from LOSING all your money.
Advice: In investment, diversify your portfolio.
Repeat Advice: In other words, place your money in a variety of different investments.
In case you missed it the first time: Don’t give Uncle Dave-o you life savings to put into a business venture that’s a sure thing.
This simple piece of information is ignored by 85% of household investors. Most households put their money in one stock and hopes it ends up making money. Most people feel comfortable allocating all their money to one investment, one project. If the investment makes money - GREAT!! If the investment loses money - #x*#x!!!! Do you want to be stressed out about your money? No. You want your money to work for you.
When you visit a financial planner the basis of every strategy is diversification and asset allocation. Every disclaimer states that every case is different - it is true they are but the one common element implemented in every case is DIVERSIFICATION.
The theory behind it is this. If you place money in a variety of investments, with 70% in moderate-yielding, conservative investments and the rest in high-yielding speculative stocks. Then if you lose some money on the speccies, then at least you live to fight another day and more likely you may break even after you add the interest from your solid investements . If you make money on them, add that onto the other interest and you are up…Way Up!!
The key to solid investment is make the most of your money, earn the average (index funds and cash), and the use part of your assets on riskier investments. You can allocate money to property, cash, bonds, shares, trees, olives or whatever takes your fancy…The average sounds boring to most people but did you know that over 80% of actively managed funds perform before the market average. Average doesn’t sound so bad now.
Psychologically, when your high-yield investments make you money you kick yourself for not allocating more funds to the investment. Don’t fall for this trap. Pat yourself on the back for having a win and move on with your strategy. Confidence and ‘what could have been’ will be your downfall.
Dominic Dirupo survived the Tech Boom and Crash with Goldman Sachs and Deutsche Bank after graduating with Honours at London's City University. Dont Buy Information is an online resource designed to help every consumer make a business decision for free. No Strings Attached.