Graham Stephan Believes the Best Investments Are 'Boring.' He's Only Half Right

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  • It's a good idea to limit the risk you take in your portfolio.
  • That doesn't mean you should steer clear of risk altogether.
  • A diversified portfolio should have a mix of more and less risky investments.

It pays to have a diverse portfolio -- and take on some amount of risk.

Whether you're saving for your long-term goals in a dedicated retirement plan like an IRA or have investments in a brokerage account, you're probably aware that you're taking on some degree of risk by virtue of not keeping your money in cash in the bank. And that's actually a good thing.

These days, savings accounts are finally paying a more generous amount of interest on the heels of rate hikes by the Federal Reserve. But even with today's bank account rates being higher, if your goal is to grow a lot of long-term wealth, you'll need to invest your money in various assets that are likely to generate higher returns. And that means taking on some amount of risk.

In a recent tweet, investing guru Graham Stephan made the statement that "boring investments are usually the best long term." But while he's right to some degree, it pays to look outside "boring" investments and branch out in your portfolio, too.

A little more risk can go a long way

You'll often hear that bonds are a pretty safe investment. Even though they can lose money, they tend to be less volatile than stocks. 

Meanwhile, some stocks are generally considered "safer" than others. Companies that have been around for a long time that comprise a huge share of the market are generally considered more "reliable" investments than smaller companies that haven't been around that long.

And then there's cryptocurrency. On the risk hierarchy scale, crypto reigns supreme as one of the most risky assets you can put your money into.

Now Stephan might argue that smaller companies or crypto aren't the best long-term investments because they're fairly speculative. But these assets might also deliver much higher returns than bonds or "safer" stocks. And that's why you shouldn't hesitate to invest in them -- to a point.

It's all about diversification

Your best bet in building a long-term investment portfolio is to spread your money out across a range of assets with varying levels of risk. Is there a chance you might lose money on your riskier investments? Sure. But there's also a chance those investments might be the ones that lead you to meeting your financial goals. 

So, let's say you're okay with the idea of buying crypto. Should you put 50% of your money into it? That's not the best idea. But should crypto comprise 10% or 15% of your portfolio? Maybe -- as long as you understand the risks involved. 

Don't just stick to boring investments

"Boring" investments may be your safest bet for growing long-term wealth, but they're not necessarily your most lucrative option. And so a good compromise is to load up on a range of assets that complement each other nicely. 

Of course, you can take more liberties with riskier investments when you're fairly young and have lots of time to ride out losses. If you're saving for a milestone like retirement, you may need to rebalance your portfolio as that phase of life nears and dump your more speculative assets in favor of more stable ones.

But all told, when it comes to building wealth, boring isn't always your best bet. And it certainly shouldn't be your only focus, either.

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