Get Rich with Dividends: A Proven System for Earning Double-Digit Returns

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 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 variety of stocks, bonds, real estate, precious metals, 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.

Within any asset class, it makes sense to diversify as well.

If you own a portfolio of rental properties, you wouldn’t want to own houses that were all on the same block. If that block suddenly becomes undesirable, your portfolio will take ...