Nearly a year after the worst financial crisis emerged, which caused exchange traded funds (ETFs), stocks and the overall financial markets to crumble, many investors are rethinking old strategies and are eager to get back to portfolio construction.

According to Jonathan Burton for MarketWatch, when it comes to portfolio construction, the following lessons shall be learned (a few of our own ideas have been thrown in for good measure, too):

  • Diversification isn’t dead. Burton states that true diversification comes from allocating assets to different classes, like stocks and bonds, and not allocating assets between just stocks. [How to get diversified.]
  • Asset allocation works and a mix of stocks, bonds, cash and alternative investments affects total return more than the individual investments you choose.
  • Market-timing doesn’t work, while periodic rebalancing reduces risks and helps one prepare for the unexpected.
  • Save as much as you can and don’t overextend yourself.
  • Buy and hold no longer works the way it should – we suggest watching the trend lines. [How to watch the trendlines.]
  • Educate yourself about what your portfolio holds, what is going on in the world and how this can affect the returns on your portfolio. This is becoming increasingly important as the economy becomes a global one.
  • Have a stop-loss. Don’t ride something to the bottom hoping that it will come back. [A strategy for all occassions.]
  • Have patience. We all make mistakes. Use those errors as opportunities to do better next time.

For more on following the trend lines, visit our trend following category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.