The Best Investment Advice You'll Ever Get

The best investment advice you'll ever receive is not a new, exciting, cutting-edge secret that you were probably hoping for. It's quite the opposite, actually. The best advice is the yawn-inspiring, time-tested, 'effective-since-the-advent-of-the-stock market' approach, and it's no secret.

It's diversification.

I know what you're thinking: quit wasting my time with this boring stuff! And I get it - you've probably heard the 'diversification' bit a million times. But I'd argue that the concept of diversification isn't boring at all. Boring to me is watching C-Span for 16 hours straight. Diversification is different: it's actually more challenging than it is boring, for two very critical reasons.

Reason #1: Everyone Knows Diversification is the Answer, But Very Few People Know How to Properly Diversify

This is the equivalent of everyone knowing that eating healthy leads to a more healthy (and perhaps longer) life, but few people know what to actually eat and how to organize healthy meals. Investing is very similar. Most folks know that a well-diversified portfolio can lead to strong risk-adjusted returns over time, but few actually know how to build the diversified portfolio in the first place. What if there were easy-to-use technology that could give you ideas for how to build a diversified portfolio yourself?? (spoiler alert: it exists right now, at tickeron.com)

Reason #2: Investors Get In Their Own Way too Often

The second reason has more to do with human nature than anything else. Humans are hard-wired to be wary of risk and to make emotional decisions, especially when fear is involved. And make no mistake - there is plenty of fear in the stock market. All too often, investors will see something on the news that causes them to make a significant asset allocation adjustment, such as selling a big portion of stocks. But that's a major folly: diversification works if you stick with it for the long-term, but many investors have difficulty with that. That's why it makes sense for investors to acknowledge your weakness where it exists, and use the help of a Financial Advisor or the A.I. at Tickeron, to keep you on track. Take the decision-making process out of your hands a bit, and allow experts to do more of the work.

JP Morgan released some research recently that underscores the importance and the value of diversification. From 2001 - 2015, they analyzed two different portfolios. The more diversified portfolio, I'll call it Portfolio #1, had exposure to eight different asset categories: S&P 500, Russell 2000, REITs, EAFE Equity, Emerging Market Equity, Barclays Aggregate Bonds, US High Yield Bonds, and Emerging Markets Debt.

The second portfolio, Portfolio #2, had exposure to only three asset categories: S&P 500, EAFE Equity, and Barclays Aggregate Bonds.

Guess which portfolio performed better over the 15-year period?? You guessed it: Portfolio #1, the more diversified portfolio. It delivered annualized returns of 6.2%, compared to the less diversified portfolio which delivered returns of 5.4%.

Diversification makes a difference and history tells us that it works. The challenge facing investors today is knowing how to diversify, and where to invest assets. But it doesn't have to be a challenge any longer - you can generate ideas right here at tickeron.com.  

Contributor

Sergey Savastiouk|Expert

Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.

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