Tips on how to Make investments and Diversify.

If history repeats itself, over the future investors should earn about 10% a year in stocks, over 5% in bonds and about 3% in safe money market securities (like T-bills) or savings in the bank. If you purchase stocks, bonds and the amount of money market equally across the board you'd average about 6% a year overall based on the above returns. You'd also be diversified and have a conservative portfolio.

Based on the above average historical investment returns, an investment portfolio of 60% stocks and 40% bonds would produce average yearly earnings of 8% over the future, at a greater, yet moderate degree of risk.

If you squirrel all your money away at 3% you have safety, but it requires more than 23 years to double your money. Put all your money in stocks at 10% and you are able to double in 7 years, but your risk is heavy.

I would recommend that a lot of average investors shoot for an average yearly return of approximately 8% at a reasonable degree of risk. Only at that rate it requires 9 years to double your money. Now, the question is how exactly to  Invest and earn exactly to diversify to accomplish this.

Mutual funds would be the simplest solution to diversify your investments, and they come in all 3 of the types you will need: stock funds, bond funds and money market funds. By holding a combination of all three, you are able to tailor an investment portfolio to fit your personal personal risk profile.

To be able to average 8% a year, stock funds should be your largest holding and add up to about 60% of one's investment portfolio. The remainder of your cash is then split between bond funds and money market funds. If you intend to lean toward the conservative side, invest a comparable amount in each. If you intend to become more aggressive favor bond funds over the high safety of money market funds.

If you include money market funds in your portfolio, how do you replace with the lower average earnings that they will likely contribute? You either accept a slightly lower overall rate of return, or you learn the ins and outs of how exactly to invest.

Remember, 10% is what stocks have earned on AVERAGE each year over the long term. An investor who knows how exactly to invest may do much better than average. There are many kinds of stock funds to decide on from. Get familiar with them. Examples include: growth funds, small-cap funds, international funds, and specialty funds like real estate and natural resources funds.

There's also an easy investment strategy you can use to help keep your risk moderate while boosting longterm returns. REBALANCE your investment portfolio periodically. Example: you choose to go with 60% stock funds, 20% bond funds and 20% money market funds. Keep these figures in line by moving money from one area to another whenever the percentages change by more than a couple of points.

For instance, after several years you see that stock funds now take into account 65% of one's investment assets with bond funds at 20% and your cash market fund at only 15%. To rebalance you just move money from stock funds to your cash market fund to get back to 60% ... 20% ... 20%.

Good money management requires a sound comprehension of diversification and investment strategy. Putting it completely will demand that you learn to invest in bonds, stocks and money market securities. The simplest way to do this is by using mutual funds.

A retired financial planner, James Leitz posseses an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to attain their financial goals.