CNN 2010-06-23

So managing your hard-earned money wisely, how do you that? It's critical, especially in these economically uncertain times. So here with some important dos and don'ts, financial adviser 1, Ron Hart. So get your notepad out because you are about to get some free financial advice.

Good to see you, Ron.

Good to see you.

So let's begin with what we always hear, diversify 2, diversify, you know, why you shouldn't put all your eggs in one basket, what do you mean?

You can get wealthy with one stock, one a Home Depot 3, for example and write it all the way up. You stay wealthy by diversifying 4. You must diversify no more than 5 percent in one position. Do asset allocation. Most studies say, the (inaudible) studies, the main one that 90 percent of your return is derived 5 from the fact you do asset allocation well. So it's very important.

And so -- are we talking about hundreds? If you've got some disposable income or at least you got some income that you want to grow, we're talking about hundreds of dollars, we're talking thousands of dollars, what?

The less money you have, the more you need to diversify because you can't afford to lose it. The wealthy can take a better chance with the big positions. They can take more risks with hedge funds and be more aggressive, but the average investor 6 needs to be careful and watch pieces well.

All right, you need to be thinking long term, you say. Big picture?

HART: Be long-term greedy, we say. Take the long term view, that's the best way to do it. People -- you have to research your stocks. You have to pay attention to what you're doing. A lot of people would spend more time researching their refrigerator or computer than they will a stock purchase. So it's a very important thing to look at, know and pay attention.

So kind of become intimately involved in that company, in that stock, you want to know and perhaps if it's something that a real tangible 7 product or service, something you're actually going to use. You like it for some reason, maybe others do, too.

I tell people look at your American Express bill, your Visa bill, and if you are buying products from that company, you're buying them for a reason and they're probably doing pretty well.

OK, but then that means you're also saying don't get emotionally attached to your investment. Sometimes you want to go with something you really, really like, but cannot part because of your personal loyalty 8.

Exactly - human nature is you have to fight your own natural inclinations 9 to invest well. There's a tendency that you have a herd 10 mentality 11 to buy what someone told you at the cocktail 12 party.

Everybody else is doing it.

Exactly. When everyone is buying, I'm always wondering who is selling. So that it happened in '99 with hot tech stocks, internet stocks. You could go public back then with a web site, you could public. So real estate 2007, everybody's in, very pedestrian investment, people start to do it and that's when you get out.

All right then you say, you know, review your investment strategy fairly regularly. How regularly? Because you would drive yourself nuts if you're doing this every day, when is regularly?

It depends on your tolerance 13 and your risk parameters 14. Most people feel like twice a year would be enough to do it. Sit down with a professional and go over it. You should definitely take a stock in your change of circumstances. Your kids going to college, you're getting ready to retire, things like that that are very important to let you financial adviser know.

Some folks are still thinking about what took place about a month ago, the Greek debt crisis. Could it happen here? What do we need to learn from that that people are experiencing in Europe? Might it impact us, too?

It might. We are spending money at a rate that's parallel to Europe. It's unsustainable over a long period of time. I had a friend of mine who said we are spending money like a drunken sailor.

He went on to say, I was a sailor once and at some point the bartender cuts you off. So he says with America we keep spending money and we keep put our country in debt. It's going to be our kids' problems. It's a very selfish endeavor and I hope hopefully Greece will be a warning for everybody.