Successful Investing (Part 4)

Diversify, diversify, diversify.

That’s principle number four. Successful investors don’t “let it ride” and keep their bets on the same horse. They know that what goes up, comes down. And what goes around, comes around.

Take the most basic diversification of all—between bonds and stocks. Many long-term investors own 100% stocks, for the simple reason that this is the asset class that has the greatest growth potential. But if you add just a quarter of bonds to the mix, and consistently rebalance, your risk goes down by about half. That lower variance can be mighty comforting if you’re gonna need the cash within the next five to ten years.

The same goes for holding individual stocks. While seeing a stock multiply in value is fun, it’s more likely to wiggle and jiggle its way upward gradually. Better to own a portfolio that can cancel each other out. Then you’re less likely to panic and sell out when times are temporarily tough.

The main idea in real estate is location, location, location. With investing, diversification is just as central.


Douglas R. Tengdin, CFA
Chief Investment Officer
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