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The Most Important Part of Investing: Diversification

Three rules for investors to live by in tough times


It was a relatively quiet week for economic news last week due to the Memorial Day weekend, and while the market bounced all over the place in intraday trading, it barely budged in weekly movement. So far this week the market is bouncing up and down on news from Europe.

Of course, that doesn’t mean that we were quiet her — the Blue Chip Growth Message Boards were buzzing as our Buy List soared more than 3%, blowing away the Dow by more than three-to-one.

This is to be expected since we’re so focused on the retail sector—our Top 5 stocks for June are heavily weighted towards the American consumer, and there’s plenty of upside in A-rated consumer stocks on the Buy List, especially Dollar Tree (NASDAQ:DLTR), O’Reilly Automotive (NASDAQ:ORLY) and Ross Stores (NASDAQ:ROST).

At this point in time, I feel it’s a great opportunity to remind everyone about what exactly my rules of diversification are. As we enter the more volatile summer months, now is the perfect time to brush up on these rules and put them into play—diversification is your best defense against any market volatility:

1)Own the right mix of stocks.

The Blue Chip Growth Buy List is divided into three distinct “risk categories”: Conservative, Moderately Aggressive and Aggressive. I advise that you build your portfolio that is 60% Conservative Stocks, 30% Moderately Aggressive Stocks and 10% Aggressive Stocks.

2) Avoid being overweight in any one stock

Yes, even powerhouses like Apple (NASDAQ:AAPL)! This means that no one stock should ever make up more than 10% of your Portfolio.

3) Rebalance your portfolio every few months

Your position in our Buy List stocks will change as stocks move up and down. So rebalance your portfolio by taking “partial profits” in winners and adding to your smaller positions to bring them up to equal weight.

If you have been following these rules already—you’re doing great! You are taking a crucial step towards hefty long-term profits.

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