Get Rich with Dividends, 2nd Edition

CHAPTER 7 What You Need to Know to Set Up a Portfolio

You've heard the well-worn saying “Don't put all your eggs in one basket.” That's why most financial professionals recommend you diversify your investments across a variety of assets.

Normally, you don't want to be 100% in stocks or 100% in bonds. You want a good mix of assets so that if one asset class is underperforming, there's a good chance another one is outperforming.

Typically, you want to own a mixture of stocks, bonds, real estate, precious metals, and maybe some commodities or other investments. The recent financial crisis is a good example of how this type of portfolio can balance things out.

While stocks and housing were crashing in 2008 and early 2009, bonds, gold, and commodities performed well. An investor who was well diversified lost less than one who was primarily in stocks and real estate. I knew plenty of people who lost everything because all of their money was tied up in real estate—the very same people who told me just two years earlier that “Real estate is the only way to make money.”

Next time someone tells you that one specific way is the “only way to make money,” figure out a way to short that person's net worth, because it's heading south within a few years. I guarantee it. I don't care if the way is gold, real estate, stocks, or Italian trattorias. When people are so arrogant about their investments (even if they're usually smart investors) that they've concluded it's infeasible for there to ...