Why do we constantly make the wrong decisions, when it comes to money making decisions. I’m not talking about minor asset allocation errors, e.g. buying too many growth stocks when he should have allocated some money in more defensive ??? stocks at times. Or not adding enough bonds to our portfolio. I am talking about mean big mistakes that cost dearly.
The reason is, we consistently look to strike it rich with one big play. The thought of striking it rich in a very short period of time is too tempting! But the successful concepts is growing money safely.
The concept is very easy:
1. Don’t focus on just one investment.
2. Don’t invested more than you can afford to lose.
Riding out bear markets calmly by investing in a variety of sectors and asset classes so something is always working, makes a lot of sense. Even if stocks are way down, you will have money in precious metals and fixed income, which takes some of the sting out of it. Also, keep cash handy to put to work when stocks have fallen so you can take advantage of lower prices and make above average returns. If most or all your money is invested in a small concentration of investments, you have fewer opportunities to hit a winner. In addition, there’s a very strong chance you’re going to miss a big move in one market because you were unable to deploy cash when prices are outstanding cheap and on sale. How many times have you wished to have more money at hand to take advantage of special situations.
But also very important is: You must never invest more than you can afford to lose! There’s nothing wrong with put your money in a riskier investment with high return potential when you can afford when things do not turn out as planned. You must never be in a position where, if things do go wrong, you’ll be wiped out or suffer a loss that will be tough to come back from.
So, don not let your portfolio become too concentrated in just a few risky investments. Diversifying and put only this money at risk you can afford to loose.
Sven Franssen