I reduce risk of losing money through the principle of asset allocation or simply diversification. Basically you don’t put all your eggs in one basket.
Let me demonstrate how my asset allocation looks like.
I have three baskets in which I put my investments.
1. The security Basket. I use this as my backup basket which must not fail in all circumstances. In this basket I include my house and other property holdings and land. Over 70% of my assets are held in this basket. This is the safest basket. I don’t play around with this basket.
2. The Growth Basket. I use this for assets I would like to grow and increase my wealth. The individual asset risk varies from low to medium to high. In this basket I hold all my financial assets, forests, businesses, etc. This basket has about 25% of my asset holding.
3. The Dream Basket. This one holds things like cars, vacation savings, etc. This is my smallest for now and holds about 5% of my assets.
So I have a basket for security of my family; another basket to grow my wealth and another to chase my wild dreams. Every month I fund these baskets in the same ratio (70:25:5). This ensures that I am properly diversified in case of any eventualities.
Your individual asset allocation will depend on many things including your risk tolerance, net-worth, age, income level, professional and business experience, etc
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