Some investors will say, “I’ll only own stocks,” while other say, “I’ll only own bonds.” This attitude ignores the reality that at different times stocks will be up, while bonds are down, and vice versa. A diversified investor has balanced his or her risk. Greater diversity lowers your potential risk and increases your potential gains.

Strathmore advocates not only a diversified portfolio, but also rebalancing as needed. For example, if you’ve determined that you want your portfolio to hold 50% stocks/50% bonds, when your stock holdings’ value increases to where it’s 60% of your portfolio, then you’d sell enough stocks and buy enough bonds to bring your balance back to 50/50.