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November 14, 2008

Tried and true investment principles

With today's situation in the financial markets, investors are looking for some guidance for making their savings grow. Can you offer any suggestions?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I would remind our listeners about two very tried and true investment principles: diversification and age. Diversification, of course, is very simple. It means not putting all your investment eggs in one basket but spreading them around. Now the logic of this is that although some of those eggs won't do well at a particular point in time, others will. So at any point in time, if you're diversified, you tend to have a balance; some investments doing well; other investments not doing as well. But on average, you'll get a modest, consistent rate of return. That's what you're striving for with diversification. So this would be a good time to review that principle and think about, perhaps in the future, having some money in very safe CDs and bonds. On the other hand, having some money in more risky stocks. Have a little gold. Have a little real estate. Mix it up so that you are never caught in a situation where all of your money is going down at the same time. The other principle is age, and what I mean here is the age of the investor. That is, your age is often going to dictate how much risk you want to take in your investing. When you're young, you have many decades ahead of you; time can correct investment mistakes. When you're older, you have a limited time to live, and therefore, you need that money. You probably want to err toward safety. So consider your age in determining where to put your investment money."

Posted by Dave at November 14, 2008 08:00 AM