Every so often, stocks do something unexpected: They go down instead of up. For neophyte investors, memories of the last bear market (in 1994) may not be part of their memory banks. More experienced investors may recall 1990 as a dismal way to begin the last decade of the century. Few investors and perhaps almost as few money managers can recall the battering that stocks took in the ugly 1970s market. But no matter what your frame of reference is, to have a fighting chance of reaching your financial goals, you should put your money into more than one investment class.
Smart investors know diversification is the one-two punch that can help secure long-term financial success. These days, everyone is an investment expert, from the CNBC gurus to your barber who dabbles in the market. Their advice runs the gamut from highly sophisticated portfolio management and asset allocation models to a basic diversified portfolio. Some strategies are easy to understand, while others defy all logic. Municipal bonds, for example, may have a place in investors' portfolios, but often, these special debt securities aren't recognized for the jewels they are. The question is, Why municipal bonds now?
Lorayne Fiorillo is a financial advisor at Prudential Securities. All figures are courtesy of Prudential and are as of February 6, 1998. Past performance is no guarantee of future returns. For more information, write to Lorayne in care of Entrepreneur, 2392 Morse Ave., Irvine, CA 92614.