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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By | 2014-09-03T20:48:50+00:00 August 13th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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