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Asset
allocation is your second consideration.
For example, if you were to take an elevator to the top of
a tall building and you had the choice between one elevator
with three supporting steel cables and another with only one
cable, which would you take?
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They
both reach the same destination in the same time but
the elevator with three cables has a higher degree of
safety.
It
is the same in the markets. This principle is known
as diversification.
Spreading
your risks among several asset
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classes
will reduce your portfolio risk but still allow you to make
reasonable gains. For example, a long-term investor could diversify
his assets among property, equities and debt securities.
Further
diversification among these asset classes could be achieved
by investing in property trusts, equity unit trusts and debt
security unit trusts. Metaphorically, these three asset classes
could be the three cables in your investment elevator.
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