If you are an average investor you may have about 60% of your investment assets in stocks and most of the rest in bonds. Most of this money is probably in mutual funds: stock funds and bond funds. This is likely the way you are positioned IF you take advice from a traditional investment professional, or if you invest on your own and keep your portfolio balanced in line with Wall Street’s conventional wisdom.

I hope you have a higher risk tolerance than I do, because you may be taking more investment risk than you think you are. Let me guess. You’ve been told that if you hold both stocks and bonds that over the long term everything should work out for you just fine.

Conventional investing wisdom says that stocks and bonds march to the beat of different drummers … so when one of these asset classes gets clobbered the other comes to your rescue.

Well, that didn’t happen in the early 1970’s or early 1980’s, and it isn’t likely to happen anytime soon if interest rates and inflation heat up. High and rising interest rates and inflation can destroy the value of both stocks and bonds. Where’s your defense? How can you get good returns as a long-term investor while lowering your investment risk at the same time?

Here’s my suggestion. Spread your money across 4 asset classes, not just the traditional two called stocks and bonds. The easiest way to do this is with mutual funds.

So, first cut your allocation to both domestic stocks and bonds. Second, add both CASH EQUIVALENTS and ALTERNATIVE INVESTMENTS to your investment portfolio.

Cash equivalents (and/or fixed accounts) will work to decrease investment risk and increase safety. Money market funds are great cash equivalent investments for average investors. Bank CDs work fine as a safe fixed account. Both are low-risk and both provide the investor with income.

Alternative investments I often refer to as COUNTERBALANCING INVESTMENTS. They CAN come to your rescue when stocks and/or bonds are in trouble. Examples here include gold, oil, foreign investments, real estate, commodities, other minerals and natural resources, and tangibles in general.

By investing in all 4 asset classes, the average investor can be truly balanced across the board. A well balanced investment portfolio is the key to good long-term investment returns with less risk.

The easiest way for the average investor to invest in this manner is with mutual funds. There are funds available to fit your needs in all 4 asset classes.