Many people resist this notion, and for that reason I sometimes recommend that an investor put 20 to 40 percent of a portfolio into a balanced fund that includes both stocks and bonds. To some die-hard equities fans, this seems to be more acceptable than a straight bond fund. And a balanced fund may be more acceptable to ultra-conservative investors who are nervous about owning equity funds. If you re in one of those categories, you should consider it carefully. Diversification is not an evil scheme designed to prevent you from making money.
Diversification is one of the wisest ways to be a good investor.
From 1965 through 1974, U.S. stock prices had an annualized return of only 1.25 percent. In those same 10 years, one-month certificates of deposit returned 6.5 percent. Too many investment decisions are made on the basis of emotions instead of facts and logic. Once we make an emotional decision, we tend to rationalize it any way we can. When we told him a portfolio that size couldn t possibly support him for the rest of his life, he replied that he might not live very long.