Top 10 things every investor should know about asset classes

The best single piece of advice I have for investors is deceptively simple: Diversify, diversify, diversify.

It’s simple, a one-word prescription. But it’s also deceptive, because it works only if you do it intelligently.

Everything I’ve learned over half a century makes me believe that asset-classes are the key to long-term success. Choose the right ones. Avoid the wrong ones. Mix them up properly, then leave them alone and let them work for you.

In my signature article, I identify and discuss the best asset classes for long-term performance, show why each one matters, and tell how to put them together. I call the result “The Ultimate Retirement Investment Strategy.”

Here are 10 things every investor should know about asset classes:

1: Past performance

Every important asset class has a known, factual history of performance. Each one also has a future, which cannot be known. Don’t forget that last bit.

2: Risk

Every asset class — in fact, every investment — involves risk, which is another term for uncertainty. This is where things get tricky, because there is no risk in the past, no uncertainty about how things turned out.

Yet it’s essential to evaluate risks, because they can help us predict future losses (which of course we investors always hope will be temporary). Knowing past losses, we can try to predict whether we as investors are likely to accept similar losses and stay the course in search of expected long-term gains.

3: Long term vs. short term

Longer-term results from the past are likely to be a better guide to the future than shorter-term results. To use an extreme example, the performance of the U.S. stock market over the past 10 years is a better guide than whatever has happened to the Standard & Poor’s 500 Index SPX, +0.41%  during the most recent three hours of trading.

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