The concept of portfolio diversification is very simple and only means that you do not put all your eggs in one basket so to speak. If you buy shares in an airline does not agree with another airline. Take a look at another sector as a whole. Think about it like this, when suddenly a sharp increaseoperating costs, such as jet fuel, then this will impact on all airlines. When stocks in more than just an airline that affect the price of all your stocks. It 'a lot more sense to spread your bets around different industrial sectors. Others argue that if you stick with my example, airline passengers suddenly see a big increase in prices you can feel the increased quotas for increased profits. This is of course true, but in my opinion not worthRisk. It is not an insurance company to look elsewhere to diversify your portfolio.

How much diversification should be? This is entirely up to you and probably have as much knowledge in a particular area and how much money you are willing to throw themselves refer the purchase of stocks and shares. You want to keep your portfolio manageable, it might make sense, so that there are five branches or however many you think you can go and spend the necessary time. Warren Buffettthe greatest investor of all time, a little island has a path of diversification and Lets face it, who can argue with his success? It is investing a greater extent in a small number of companies as its portfolio is not as diversified as most. He always said that stocks often trade in an attempt to diversify is through brokers only with more money and reduce your profits why continue to pay taxes for business. Warren Buffett has consistently held that it is betterinvest more in a title they have already distributed money, so subtle, in the hope that you got all the bases.

This leads me to index funds. Warren Buffett is a big proponent of the use of index funds, and believes that they are suitable for most investors. This is done by the ability of investing in stocks, simply buy the entire market. For beginners stock market can return a secure and long term. No research is neededJust buy the same number of shares each month on the market and processing fees for brokers are exceptionally low. Index funds are not as exciting as buying stocks yourself. You will not find anyone around the parties have an index fund that they own, but nobody can gain long term by sticking with this application method.

In short, index funds can diversify the best way for most of us, but still a decent portfolio of long-term profit with itsInvestment in the stock market.

Everyone knows mutual funds are safe. Jack and Jill know they don?t know how to pick good stocks so they leave that to the fund manager. He is an expert.

When you look at the long term record of 99% of the mutual funds you will see that expertise has been sadly lacking. I hate to remind you of the 2000 to 2003 period, but I must. In fact I must tell you it is going to happen again. Now you want to know when?.and so do I.

And that is the problem with almost every fund manager. As long as the market is going up they can?t do much damage to your account, but when it rolls over and heads down they have no idea how to invest when a bear market is in progress. Not a single one of them will acknowledge that cash is a position.

Cash is a position? They are in shock. Of course they are. If brokerage customers put their money in a money market account while the market is falling it means they do not make any commission at all and if they recommend this to their customers the brokerage manager will fire them because he won?t make any money either. ?Keep your customers fully invested or I?ll show you the door? is the manager?s comment.

You must learn when to sell. Any fool can buy, but it is the wise man who knows when to sell. To see the condition of the overall market one of the best indicators is the SP500 Index. Your broker compares everything he does with the SP500 because it is a broad base of 500 stocks that are widely traded.

The finest indicator is the SP500 Index. Draw a 40-week chart of the closing prices. If you don?t know how ask your broker. He will tell you. Write it down and save it. It is very simple. Have him set up a 40-week Simple Moving Average to appear on that chart. Look at 5 years worth of prices. Immediately you will see that if you are in the market while the 40-week MA is going up you are making money and if you are out of all your positions while the index average is going down you will not lose money. It doesn?t get any easier that that.

Jack and Jill can fill their pail as the market is going up and need not spill their accumulation while they walk confidently down the hill holding their bucket full of cash not equities.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005