Not putting all your eggs in one basket is one of the easiest way to mitigate major investment risks. The bigger question is "What baskets should I use?" and "How many eggs go in each basket?"
We have answers to those important questions.
Cost is Key
Investment costs are a direct drag on performance. Therefore, keeping costs low is vitally important. There are generally two fees you pay when working with an adviser who is not commission-based: an investment vehicle fee and an adviser fee.
You must look at the total cost of investing and weigh that against the value you receive.
Buy Low | Sell High
This principle is a no-brainer, right? Even though everyone knows this, it is probably the principle most commonly violated. Very few have the fortitude to do it consistently. In our experience, we have found that humans are emotionally wired to do just the opposite—buy high and sell low.
Master your Emotions
Humans are emotionally wired to do exactly opposite of buy-low and sell-high. We have a "fear of missing out" when markets are strong (which can lead to "buying high"). When markets are falling we have fear of excessive loss (which can lead to "selling low").
A good investment strategy must have a mechanism to take emotion out of investing because emotion so often destroys investing success, whether it be greed or fear.
Market Timing is Impossible
No human being has consistently timed or predicted the tops and bottoms of every market cycle.
Predicting the short-term fluctuations are about as easy as guessing heads or tails on a coin flip. You'll most likely be right about 50% of the time.
Historically Markets Eventually Recover
A diversified market has historically eventually recovered from its down-turns. This principle teaches us that down markets become unique opportunities where savvy investors can take advantage of volatility. Imagine looking forward to volatility instead of fearing it.
*Diversification neither guarantees a gain nor protects against a loss.