April 11, 2012
In the same manner, there isn't one diet that fits everyone. Depending on your body fat makeup and what you're trying to accomplish (increasing endurance, building muscle, losing weight), the proportions of protein, fat and carbohydrates you should consume can vary widely.
SEE: Introduction To Investment Diversification
Thus it goes for balancing your portfolio. A former client of mine once stated that her overriding investment objective was to "maximize my return, while minimizing my risk." The holy grail of investing. She could have said "I want to make good investments" and it would have been just as helpful. As long as humans continue to vary in age, income, net worth, desire to build wealth, propensity to spend, aversion to risk, number of children, hometown with its concomitant cost of living and a million other variables, there'll never be a blanket optimal portfolio balance for everyone.
That being said, there are trends and generalities germane to people in particular life situations; many investors don't balance in anything approaching the right mix. Seniors who invest like 20-somethings ought to, and parents who invest like singles should, are everywhere, and they're cheating themselves out of untold returns every year.
If you recently graduated college – and was able to do so without incurring significant debt – congratulations. The prudence that got you this far should propel you even further. (If you did incur debt, then depending on the interest rate you're being charged, your priority should be to pay it off as quickly as possible, regardless of any short-term pain.) But if you're ever going to invest aggressively, this is the time to do it. Yes, inclusive index funds are the ultimate safe stock investment, and attractive to someone who fears losing everything. (The S&P 500's minimal returns over the last 13 years is a testament to its "safety.") Still, why not incorporate a little more unpredictability into your investments, in the hopes of building your portfolio faster?
So you put it all in OfficeMax stock last January, and lost three-quarters of it by the end of the year. So what? How much were you planning on amassing at this age anyway, and what better time to dust yourself off and start again than now? It's hard to overemphasize how important is to have time on your side. As a general rule of life, you're going to make mistakes, and serendipity is going to smile on you once in a while. Better to get the mistakes out of the way early if need be, and give yourself a potential cushion. "Fortune favors the bold" isn't just an empty saying, it's got legitimate meaning.
Read more: http://www.investopedia.com/financial-edge/0412/The-Best-Portfolio-Balance.aspx#ixzz1rmK2PKWi