Good Investing Advice from Henry Blodget

While this is a forex site and this article by investment columnist Henry Blodget is about the stock market, I'm featuring it here because it's got good general advice no matter what market you trade in. The article takes a critical look at the recent stock market declines and the panicky headlines that accompanied them, as they always do.

Back in the day, Henry made a name for himself as one of those over-optimistic analysts who helped pump up the dotcom boom until it came crashing down. As someone who worked at a wayyyy overhyped web company back then (which shall remain nameless), it's good to see him coming back down to earth and offering sensible, clear-headed advice on how to think about market behavior and manage your investments accordingly. Some of the highlights:

The title: "The Market's Crashing! What Should You Do Now? Um, nothing."

His critique of the investment media: "What makes great investment media, however, often makes terrible investment advice."

His recommended timeframe for stock market investments: "If it really matters to you what the market does in the next several months or years, you shouldn't own stocks."

The risks of basing future investments solely on past market activity: "The last thing you should base your investment strategy on is what the market has done. One of the most common and most devastating mistakes investors make is 'driving with the rearview mirror,' as Warren Buffett puts it."

The value of keeping calm and maintaining a long-term view: "The only thing you can be reasonably certain of is that, if you have an appropriately long-term time horizon and an appropriately diversified portfolio, what the market does in the next few months or years won't matter a bit."

Tying this back to forex, I think it's very important to hold a significant percentage of your assets in non-currency investments. Putting all your money in forex is putting all your eggs in one extremely risky basket. I agree with Henry that a diversified portfolio is the key to long-term financial success - yes, I know it sounds boring, and frankly just typing the words "diversified portfolio" makes me yawn. But boring can be a good thing. If you're bored, at least you're not worrying.

To use myself as an example, my forex account adds up to about 3% of my total assets. The rest is in investments such as: a stock fund focused on capital appreciation; a 401k spread through a half-dozen money market, stock and bond funds; a small portfolio of individual stocks; and a high-yielding savings account. Oh yeah, and a house. Of course, I probably spend at least 50% of my time focusing on those 3% of my assets in my forex account, but that's because I'm still convinced my forex investments have the highest potential upside. Whether they do remains to be seen, and if they don't at least I'll have the other 97% in nice, boring, lower-risk baskets. (Well, except for the house. With the real estate market on the skids I don't know if I'd call this place a lower-risk investment at the moment. And did I mention I live 10 miles from the San Andreas fault?)

Read the whole article here.
Visit Henry Blodget's site.
Especially his "How to get rich" article.