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I was reading the comments on this post on Get Rich Slowly when I saw Alexandra’s comment:

I see investing like this: a man walking up the stairs who is playing with a yo-yo. The yo-yo goes up, and the yo-yo goes down, just like the markets do. I don’t pay any attention to the yo-yo though, because by the end of his walk up the stairs (30 years) he’s going to be at the top, no matter what the yo-yo did.

I guess this is a common analogy (or at least Google pointed it out in several different places) but I’d never heard it before, so it really caught my eye.

And how true is that? Things do just seem to go up over the years, given enough time. (At least in general.)

But what about investing in a variety of single stocks? (Which is what I’ve done, plus a couple of index funds.)

That might be more like keeping a whole bunch of yo-yos going as you climb the stairs. Some of them will likely hit the steps and spin out of control, others might do fancy tricks and shoot into the stratosphere, but on average they’ll be busy going up and down while gradually trending upward.

I think the key is to diversify across types and companies, putting a small amount in a variety of companies across each of the categories. That’s what I’ve been doing, at any rate, and it seems to have worked pretty well so far. I have couple of disaster stocks and a couple of super stars, but the majority are just what I will now think of as nice little yo-yos.