Investing in financial products may seem straightforward, but it indeed has certain barriers when actually executed. The so-called diversification in investment is not as simple as going to the vegetable market, weighing a few potatoes, picking some Chinese cabbage, getting half a catty of pork belly, and finally adding a couple of scallions. Before making specific allocations, one must consider a comprehensive set of factors including your financial situation, family life cycle, investment experience, and risk tolerance to determine the most suitable diversification ratio for you.

The term "diversification" here refers to the dispersion of funds across different asset classes such as equities, funds, commodities, etc. The reason for spreading investments across various asset classes is due to the inherent characteristics of each type of asset, which means they generally do not experience simultaneous gains or losses.

Asset Allocation and Misconceptions

For instance, when the stock market soars, the bond market typically performs averagely; and when the bond market surges, commodity assets do not necessarily rise accordingly. In other words, the correlation between the ups and downs of different asset classes is low, and only by diversifying funds into asset categories with low correlation can one achieve stable returns while reducing investment risks over the long term.

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If you invest all your money in 20 stock funds or even 20 individual stocks, it may seem like each investment has a low proportion and the funds are dispersed in terms of amount. However, when a bear market arrives and the stock market declines, all your investment targets will face losses, and the risk has not been diversified.

This approach is not asset allocation, nor is it about putting eggs in different baskets. It is merely packing the eggs in different plastic bags and neatly placing them in a basket that may not be suitable for you at all. Once the basket falls, all your eggs will be inevitably broken...

Buffett often says, "Don't put all your eggs in one basket." The key point of this statement is the importance of having multiple "baskets," yet what people often do is put "different eggs" in one basket.

A professional asset allocation plan is not as simple as following a recipe to shop at the market, but it should be an exclusive financial plan tailored to the differences of each individual investor after thorough analysis.Only by diversifying funds across major asset classes can one take advantage of their "ups and downs" to achieve the goal of risk reduction. Asset allocation should not be a one-size-fits-all product portfolio, but rather a set of investment recommendations tailored to the investor's different risk preferences, investment objectives, family life cycle, and other factors.

Determination of Investment Ratios

What percentage of investable assets should be allocated to stocks or equity funds? A rule of thumb is the "80 rule," which suggests subtracting your age from 80; the remaining number represents the maximum proportion you can invest in high-risk investments, or simply put, equity investments.

After determining the investment amounts for each major asset class, how to select high-quality products within each class to implement the allocation plan and regularly review your asset allocation ratios to maintain balance is something we will discuss in more detail later.

Saving is a long process, and you need to persist over the long term

To accumulate your first pot of gold in investment and financial management, you must learn to save compulsively. By using the formula "expenses = income - surplus," complete your monthly saving plan first before starting reasonable consumption, and you will have hope of achieving the change from "0" to "1." Do not underestimate the hundreds or thousands of dollars you save each month; the power of time and scientific investment methods will help you achieve those "small goals" in life without you realizing it.

Blind stop-loss is a stumbling block to success

If the market or individual stocks keep rising or falling, the "stop-loss" strategy is relatively acceptable; the greatest loss would be to earn less. However, we all know that the market will not keep moving in one direction indefinitely. The most common situation is the fluctuating pattern, and if you repeatedly "chop hands" in such a market, the most likely outcome is not that the market "harvests" you, but that you end your own investment.

Statistics from a brokerage firm have shown that most of the losses incurred by investors are caused by incorrect stop-loss actions. A slight market fluctuation, and many psychologically fragile investors immediately cut their losses, even calling it "timely stop-loss"... But in reality, stop-loss is merely a means to prevent losses; it does not generate any value on its own.

Persist in long-term investment and avoid blind stop-loss.Encourage investors to adhere to long-term investments to achieve stable returns. Therefore, taking profits without stopping losses is a method. In fact, this situation is easy to understand. Regular investment, as a long-term investment plan, is essentially about averaging costs, accumulating small amounts into more, and waiting for the market to soar. If you redeem at the first sign of a loss, it's equivalent to undoing all previous accumulations. Even if the market rises significantly later, the initial regular investment loses its meaning because you have already cashed out your chips.

During the process of regular investment, we are not only not afraid of losses, but we actually welcome market downturns, as they present better opportunities for us to buy high-quality investment targets at lower prices. So, having losses is not terrible; what is truly terrifying is blind stopping of losses.

Thus, after all the talk, we understand the principles, but we just can't get past this hurdle. In fact, if you can recognize the limitations brought about by irrational emotions in human nature during the investment process, you should actively give up on sporadic and meaningless short-term trading and choose to persist in long-term investments.

On the investment path that battles with human nature, the market, and timing, only by being aware of one's own irrational shortcomings can one choose the most suitable investment channels and methods, avoiding unnecessary mistakes. Only in this way can we truly honor the "first bucket of gold" we have worked so hard to accumulate.

In summary, during the investment process, one should be fearful when others are greedy and greedy when others are fearful. However, most people are tripped up by the weaknesses of human nature, either blindly stopping losses or buying high. Individual investors, in the absence of comprehensive professional knowledge, should abandon the pursuit of short-term investment returns and opt for long-term investments to reduce the likelihood of losing money. Only by "losing less" can we truly achieve "earning more" on the path of investment.