Portfolio Risk: Diversification is not the only way

In a properly diversified portfolio it is important to not only diversify within an asset class but ensure you have assets that work ‘out of tune’ with one another. If you were to have all of your investments performing well at the same time beware as when there is down in the market they’ll all most likely head the same way.

Simplistically let’s look at it this way: you have two investments a winter one and a summer one. They both perform well in season but not so well off-season – they could be positive 10% and negative 10%. By placing the two together you then get the average return of the two.

Investing is About Discipline: Avoid the next HOT tip.

Two of the biggest demons you have to deal with when investing are fear and greed. Both are valid human emotions, but both can get in the way of logical, disciplined investing. If you can manage both your greed and your fear, you can stay away from the lemming-over-the-cliff mentality that grips so many other investors. This applies to any short term comparison between different markets, assets or managed (mutual) funds.

Temptation can be a scary thing and the temptation to run to the smoking hot and fashionable investment of the week is extremely high, so high in fact that many investors take to it like a month to a flame. If you don’t want to get burned, avoid ‘hot’ investment tips from your friends and use discipline as your number one investment strategy.