“Don’t put all of your eggs in one basket!” You’ve probably heard that one a couple of times in your life. In fact I'd be willing to wager that when you were a kid, your grandmother nagged you as you left the hen house a time or two, armful of the day's prize while the feathered damsels fluttered to get out of the way of your feet. That nasal nag from your grandmother distracted you just long enough to turn your head and trip you over a bulging tree root. Bam! And there you sat, the gooey mess oozing down your face while your grandma clucked her tongue. "Now, what did I tell you?"

Sound familiar? Okay, maybe that was me... Come to think of it, that's about the same time I started carrying a handkerchief.

But there's a reason these sayings get to be cliche - they're true! And when it comes to investing, few phrases have been droned more wisely. You really shouldn't trust your fragile nest egg to one flimsy container. Diversification is the key to any successful investing plan. All successful investors build portfolios that are widely diversified, and you might want to take a cue from this practice. Diversity might well be the key to your happiness - and keeping your shirt clean.

Diversifying your investments can include putting your money in various stocks in different industries. It could include buying bonds, investing in money market accounts, or even in some real property. The key is to invest in several different areas – not just one. You've heard this from me before: do your due diligence. Don't just blindly pick a sector because you want to diversify. Use your head.

Over time, research has shown that investors who have diversified portfolios usually see more consistent and stable returns on their investments than those who just invest in one thing. By investing in several different markets, you'll actually be at less risk.

For instance, let's say you invested all of your money in one stock, and that stock takes a big plunge. (Uh... gosh, I'm sorry if that scenario seems a little like an instant replay. Grab a hanky and let's move ahead.) If this is you, you will most likely find that you have lost a chunk o' change. On the other hand, if you invested in ten different stocks in various sectors, and nine are doing well while one plunges, you are still in reasonably good shape. Covering your backside is the name of this game. Investing is risky, and your job is to minimize the risk.

Making It An Even Spread

A good diversification strategy will usually include stocks, bonds, real property, and cash. Now, keep in mind that it may take time to diversify your portfolio. Depending on how much you have to initially invest, you may have to start with one type of investment, and invest in other areas as time goes by.

This is okay, but if you can divide your initial investment funds among various types of investments, you will find that you have a lower risk of losing your money, and over time, you will see better returns.

Experts also suggest that you spread your investment money evenly among your investments. In other words, if you start with $100,000 to invest, invest $25,000 in stocks, $25,000 in real property, $25,000 in bonds, and put $25,000 in an interest bearing savings account.

That said, here's another cliche for you to think about. "You can't make an omelet without breaking eggs." Don't let your fear of loss keep you from having a good breakfast!

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JS
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