Portfolio Diversification: Your Key to Success

While the bulls appear to be in control at this time, you cannot let your guard down. In my view, a critical investment strategy is the concept of asset allocation, diversification, and the addition of small-cap stocks to maximize the expected return of your portfolio. (Read “How to Supercharge Your Portfolio.”) The concept of asset allocation should be a key part of any prudent investment strategy. Asset allocation is simply the mix of assets in your portfolio; assets are divided into three major classes—cash, fixed income, and equities. Too many equities, and you’re vulnerable to selling. Too much cash, and you could miss out on a stock market rally. If you had excess cash over the past six months, you would have missed out on some nice gains. As the macro and micro factors change, you should rebalance your asset mix and modify your investment strategy. Put options should be us...