Diversify, Diversify, Diversify

Don't put all your eggs in one basket. Make sure that your core investments within each asset class are invested in a broad range of countries, sectors and types. Start with a global blue-chip equity fund as the pillar of the stock portion of your portfolio before you consider anything else. The fixed income portion of your portfolio should similarly be invested in bonds of investment grade securities.

Time Is Your Friend

If you're a young investor with, say 35 years to retirement, you can afford to take up riskier investment instruments. Even a portfolio of 80% stocks and 20% bonds is acceptable. But if you're nearing your retirement, your goal should be on preserving your capital and generating income. If you're an investor with only 5 years to retirement, you should generally stay clear of high-risk investments as you cannot afford to risk the loss of your retirement nest egg.

Past Performance Does Not Indicate Future Value

Many amateur investors fall into the trap of extrapolation, ie, thinking a stock will perform well because it has done well in the past. As renowned financial planner Harold Evensky says, "Assuming it will not rain tomorrow because it did not rain last week is a good way to get soaked. Assuming a hot stock will be higher tomorrow because it went up last week is also a good way to get soaked." Hot stocks may be hot for a while, but may not be profitable in the end.

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