How do you manage your portfolio? Where do you find the time and resources to learn all about the market? You don't! Just like at your day job, you need to specialize. The market is too huge for anyone to be equally good at everything. Review the basics, determine what your goals are, and focus on a couple of areas to construct an elegant custom-fit portfolio.
Suppose you need income and are willing to take some risk. You split your holdings between bonds and stocks. You buy high grade corporate bonds issued by blue chip companies (like Boeing, Chevron, or Wal-Mart) with different maturities for the bond portion of your portfolio. You hold the bonds to maturity and roll them over as needed for current income and stability of principal. You buy large caps with a history of increasing dividends over time (like utilities, banks, REITs, some non-cyclical consumer and industrials) to create an inflation-protected income-generating asset with potential for capital appreciation. All you need to learn about are high grade corporate bonds and dividend stocks.
Or you are a young aggressive investor willing to take risks. You take 20% of your capital and learn how to trade small caps, while keeping the rest in laddered CDs/Treasuries. This way you are only risking 20% of your capital, but if you double your money, that's a respectable 20% return on your entire portfolio. As your confidence and proficiency increase, you can allocate a larger percentage of your capital to stocks, or move some of your “safe" money into a junk bond fund. All you need to do is learn a good trading strategy and get good at it.
Or how about this: do you think all 30 companies in the Dow Jones Industrial Average will go bankrupt any time soon? If not, you can simply learn how to trade DIA. I guarantee that if you do nothing else but watch DIA all day long for a month, you will develop such a feel for it that you will be able to make money on its moves almost regardless of where the market is going. How's that for safety and security?
The market is an equal opportunity mechanism: it gives every asset class and every strategy a chance to outperform - at some time. Overdiversification across all asset classes for an eventual chance to capture an advance is an acknowledgment of incompetency, not a sign of professionalism. By becoming proficient at a few select things - be it dividend stocks or small caps - you can generate returns in excess of averages while controlling risk, more than compensating for the inevitable downtime when your asset class is out of favor.
Remember: nobody cares about your money more than you do. If you take the time to learn two or three things well and stick with them, you will become your own best money manager.
Slav Fedorov is a full time stock trader and founder and managing member of TradingZoom, LLC - a provider of proprietary trading data that swing traders can put to work right away. http://www.tradingzoom.com/