Many people who get started investing focus on the possibility of big returns…
They’re drawn to the chance (however remote) of doubling or tripling their money in a short amount of time.
I could rattle off dozens of investments with the potential for a high return right now. Some readers would gobble them up… and never even ask about the amount of risk they were taking on.
But most successful investors pay far more attention to the other half of the risk-reward ratio… Return means nothing without considering risk.
Risks lead to losses. Losses lead you to question the wisdom of saving and investing. But there are strategies you can use to avoid risk…
Most investors should spend a lot more time thinking about their investments as a portfolio that works together – rather than as a collection of ticker symbols that might go up in price.
That’s why it’s more important today to think about your entire portfolio as a whole, as opposed to just your individual investments. You must prepare for potential losses before they happen. Not after… or while panicking during a downturn.
You need a plan.
Intending to avoid bad investments isn’t a plan. The real plan is limiting losses and ensuring you’ve got the winners – and the safe havens – to keep your portfolio growing.
That’s where diversification and asset allocation come in…
Diversification. You should never put more than 4%-5% of your portfolio into a single stock.
When you invest in a basket of stocks with big upside, only a few need to go right to boost your returns. Likewise, if one stock falls quickly, your losses will be smaller. (Positions in funds can be larger because each share represents partial ownership of multiple stocks. Funds provide automatic diversification.)
As the stocks you invest in get riskier and more expensive, you should put a smaller percentage of your capital into them. For example, I’m not going to invest in Tesla (TSLA). But if you believe in its potential, it’s not crazy to have 1% or even a half percent of your capital in Tesla’s stock.
Having a diversified portfolio means you’re not going to double it in one year – but it means it won’t get cut in half either.
Asset Allocation. You also need to diversify across asset classes.
Stocks, bonds, real estate, gold, and other investments move in different directions and are influenced by different economic factors. By holding multiple asset classes, you reduce your risk and increase the return you get per “unit” of risk you take on.
When you obsess about your risk, and not your return, you end up with a strategy that works over the long haul.
That’s what Porter Stansberry, Dr. Steve Sjuggerud, and I are doing with Stansberry Portfolio Solutions…
We’re obsessing about risk for you, so you don’t have to. We’re putting all our research together for you – and giving you allocated, diversified portfolios that are incredibly simple to follow.
Instead of you having to do the work of reading newsletters, deciding which ideas are best, and allocating them into a portfolio… we do it all for you.
We build the portfolio for you, so that you end up with our best ideas… don’t put too much into our more speculative recommendations… and allocate properly between our strategies. I’m confident that we can greatly increase your average return.
And unlike a financial adviser who meets with you maybe once or twice a year, our team meets monthly to review each portfolio. So when there are unforeseen market events (as there always are), our team immediately addresses how they impact your portfolio and relays that information to you.
I’m going to be sharing this whole Portfolio Solutions strategy with you LIVE at 8 p.m. Eastern time tonight. I hope you can join me, Porter, and Steve tonight as we go over why we’re making this big change to the business…
In fact, even if you’re not interested in this kind of “done for you” portfolio… you’ll still want to tune in, as we’re sharing our top predictions for 2018.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
January 24, 2018