One individual had $11,000,000 invested with Bernard Madoff. This represented 95% of this persons’ net worth. Don’t let the same happen to you.
However attractive an investment appears you should never invest a substantial portion of your funds in it. There are countless examples of investors who thought they were on to a good thing, put all their money in to it only to find some time later the whole thing collapse.
Understanding Uncertainty
I’m pretty sure that if you look back at business reports prior to the economic crisis you would be hard pushed to find any commentator who was warning about the potential problems that would eventually surface and cause so much mayhem worldwide.
In hindsight of course there are now legions of advisers who claimed that they could see what would happen. Personally, I’m not convinced.
Human psychology is a strange and wonderful thing and many of us want to believe what we are told. We become part of the herd mentality and stop thinking for ourselves. This creates problems when knowing where to invest.
Even the best performing investments have indifferent performance now and again and we should accept that the uncertainty surrounding the global economy will always create both positive and negative situations. Unfortunately not many individuals have the knowledge or expertise to assess uncertainty and deal with it successfully.
Spreading the Risk
The answer therefore is to accept that uncertainty exists, that it will throw a spanner in your plans and that it needs to be planned for.
In other words your investment strategy must include the ability to spread the risk of your investment portfolio. So, it is wise to create a strategy that includes the following investment groups:
Cash – Sufficient to provide your living expenses for up to six months
Savings account – Rainy day fund for emergencies
Stocks – Dividend bearing growth stocks
Fixed Income bonds – gives confidence of future returns
Commodities – Gold, Silver and the like
Online Investments – Greater risk for greater reward
It wouldn’t be appropriate to put figures against the categories above as each individual has their own preferences but each should be considered.
Further Detail
Of course within each category there is also the ability to diversify and this should be considered. If we look at the Online Investment category you might split further by:
Passive Investment
Forex
Sports Arbitrage
Network Marketing
This list is just a sample of the type of investments you could invest in and should give a good spread of risk for your funds.
As you start out pick at least two opportunities and when they show positive progress invest some of your returns in a new programme. Then all you have to do is repeat.
No matter how convincing someone sounds about a specific investment don’t be tempted to invest a large proportion of your funds.
For more great tips on online investing you can visit my blog at http://www.onlineinvestingguru.com
From John Murphy and Online Investing Guru