Diversify your Investments

Going back to the basic concepts of investments and retirement planning, let's look at the concept of a diversified portfolio.

There are a lot of different potential definitions. However, the basic concept is "Don't Put your Eggs in One Basket".

If you invest in a single investment, a single mutual fund, a single industry sector or a single type of investment, you leave yourself open to any risk in that specific investment.

Look at the recent sub-prime problems south of the border as an example. Banks have typically been considered a "safe" investment, so it might be tempting to put all of your money in them. However, the recent sub-prime crisis has resulted in the value of stocks in almost all banks dropping somewhat.

You might be thinking, "Why not only invest in guaranteed investments?"

Well, that certainly is a strategy, but you sacrifice a great deal of growth potential.

The best combination for your individual diversified portfolio depends on your individual goals, so I won't go into too much detail here, but essentially you need to balance a few competing questions. Here are some of the common ones:

How soon will you need the money? We invest for a reason, and that timeframe influences the suitability of our investments. If you need it sooner, you won't want to risk losing it. If you need it in the longer-term, more risk may be appropriate.

What is you risk tolerance? Will a market downturn keep you awake at night?

What is your investment knowledge level? Some investment setups require monitoring. Be honest. Simple investments can make a lot of money as well!

So remember, as much as you might fall in love with a particular investment, limiting yourself to one investment puts yourself at all sorts of risk. We'll discuss the individual risks later.

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Diversify your Investments

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