What are Diversified Investments?

@SkyWhisperer - If you would have a diversified your portfolio, even during the Internet bubble, you could have survived. For example, your technology stocks would have tanked, but stocks in consumables might have risen. There would have been an offset to counterbalance your losses. But like you said, it’s a lesson learned I suppose.

@Mammmood - I’ve always bought mutual funds, leaving the stock picking strategy to someone else. I know that some individual investors fancy that they are geniuses when it comes to picking stocks, but that rarely turns out to be true.

Fund managers work 40 to 60 hours a week, studying the markets, poring over reams of data and making the best investment choices possible on behalf o their customers. They've learned how to invest mutual funds the right way.

I don’t have that kind of time, and I’m not a genius. I’d rather let someone else do the hard work.

@SkyWhisperer - I think your story has been repeated many times over honestly. Many people got burned in the Internet bubble. I think it’s easy to learn how to diversify investments if you quit looking for the quick return.

I have a mix of stocks, bonds and even gold in my portfolio, and like the article says, my portfolio has been able to weather the storms of the last few years.

That doesn’t mean my portfolio always goes up, but it doesn’t get slashed in half either. The best thing with a 401k is to start very early, and start putting something away, even if it’s not a lot.

If you don’t how to diversify, the fund manager can give you some advice. Usually they give you a prospectus too with a list of options.

I learned the hard way about the importance of diversification. More accurately, I didn’t diversify. At the height of the Internet bubble I stepped into the stock market and started throwing money at high flying stocks.

I didn’t know what I was doing, but in my naiveté, I thought the sky was the limit for these stocks, which were already trading at high PE multiples.

Boy, was I wrong. No sooner did I buy in than these same stocks fell like a rock as the bubble began to crack and then implode. I didn’t cut my losses like I should have, instead hoping against hope that they would rebound.

I finally took a major loss, selling at well below the buy price and licking my wounds in self pity. It was a lesson learned, however. Now I have a 401k and some mutual funds, and they have performed relatively well in boom and bust cycles. I can sleep at night too.