Diversify!

The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs in one basket. Diversification helps ensure steady growth of your net worth as you accumulate more assets.

This idea is not limited to the stocks in your portfolio, but should include all of the components that make up your net worth. For instance, it's OK to take $5,000 and put it in a stock you like as long as you have plenty of assets in other areas, such as home or property value, mutual funds, savings, etc... However, if you're still in the beginning stages of building wealth, and you only have $500 in savings, and you're renting an apartment and lease your auto, you probably don't want to put $5,000 in one stock. A good guideline is to keep from having more than 20% of your net worth in any one asset, unless it's your home.

Here's a good example of a diversified net worth portfolio for someone in their 30's:

Checking account : $2,000
Emergency savings: $5,000
Regular savings: $3,000
CDs or T-Bills: $5,000
Growth stocks: $5,000
Net value of vehicles: $7,500
401(k) plan: $15,000
Equity in home: $20,000
Other Tangible Net Assets: $10,000

Of course, the amounts will be more or less, depending on your age & situation in life.

Also, don't forget to protect your net worth with some long-term disability and/or life insurance, even if you're young. Following this simple guideline will hopefully help you reach your retirement goals.

About the author: Scott is in his mid-thirties and has a Bachelor's Degree in Accounting, with a minor in Decision Science. He entered the accounting field ten years ago, when he started working for a software company, where he stayed seven years. He is now the Inventory Control Manager for a large winery.

Realistic Investing Expectations

Over the long term stocks have provided us with great... Read More

Sell Discipline for Investors: Importance and Execution

Investors usually don't have an aversion to buying an asset.... Read More

Invest To Make Money, Not To Get Rich

The technology boom of the '90s romanticized the "rags-to-riches" ideal... Read More

The American Age of Inflation is Over

"The American Age of Inflation is finished." So says economist... Read More

Variable Annuities

You know all the articles you read about annuities that... Read More

Investing: Do You Want To Make Money, Or Would You Rather Fool Around?

It always amazes me how much stock market investors resemble... Read More

Investing Offshore for Retirement

As an expatriate you are in a privileged savings and... Read More

Help with My Annuity

The cries are heard from the distance, "I need help... Read More

How to Terror-Proof Your Money

"To drift is to be in hell, to be in... Read More

Dont Catch a Falling Knife

One of the most common mistakes made by inexperienced investors... Read More

Are You An Investment Dummy Like Me?

I am good at a few things. I can certainly... Read More

Planning Starts with the Basics

When developing a plan for your finances, the toughest question... Read More

Approaches to Investing

Here is a small summary of the three major approaches... Read More

Six Principles of Successful Investing

1. Begin investing immediatelyProcrastination is the number one enemy of... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have... Read More

Making It Second Nature

Not long ago I was laying on my son's floor... Read More

How To Start Investing For Financial Independence, Part 1

Today, I am going to start a multi-part series about... Read More

Numismatics are for Collectors, Not Investors

As a precious metals investor, you may heard much about... Read More

Day Traders and Swing Traders and Options? Maybe!

Typical day traders and swing traders look for stocks with... Read More

Moving Average Convergence Divergence ( MACD ) Charts

The Moving Average Convergence Divergence charts, or MACD charts for... Read More

The Myth of the Earnings Yield

AbstractA very slim minority of firms distribute dividends. This truism... Read More

Mutual Fund Returns May Not Be As They Seem!

Arthur Levitt, during his tenure at the SEC, experienced many... Read More

Day Trading the SP Futures with Initial S/R and the NYSE TICK

For instance, if the market moves up in the first... Read More

Time is Money and We Are Running Out of Both!

One of the fundamental principles of finance is the concept... Read More

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to... Read More