Diversification is an important strategy to follow when investing in equity markets. It is especially important for retail investors who can least afford to lose hard-earned money. To be sure even professional money managers who run other people's money for a living use diversification to reduce risks. For example, many equity mutual fund managers hold 50 or even 100+ stocks in their fund portfolios to take advantage of diversification. However whether diversification can be only be achieved by holding that many stocks is beyond the scope of this article. In general, it is a wise idea to diversify one's portfolio across sectors, countries, asset classes, etc. This is especially important for long-term investors who monitor their holdings but do not trade often based on the gyrations of the market.

In order to fully gain the benefits of diversification it is important to hold a mixture of stocks and bonds of

The belief that America is losing its economic edge is pervasive. Americans are more pessimistic about their country's prospects than at any point since Gallup, a polling firm, first started asking them in 1959. The World Economic Forum, which draws up international rankings on competitiveness, considers the United States only the world's seventh-fittest economy, a big slide from first place just four years ago. It faults America's infrastructure (14th out of the 144 countries it assesses), its primary education and health care (34th), its institutions (41st) and above all its macroeconomic environment (111th, mainly because of the ballooning public debt). The only category in which the country still ranks first is market size, a slot it is destined to lose to China sooner or later. The misgivings are easy to understand. Growth is sluggish, unemployment is high and investors are wary. America's public debt is approaching $17 trillion, more

In this article I discuss the benefits and risks of betting against the American economy and the best ways to do it. In part 1 I provide a general overview of America's economy and demonstrate that, with some exceptions, it is in serious trouble. The American economy runs the risk of entering a severe recession as a result of the following: (1) its reliance on Americans spending borrowed money and over-consuming as opposed to saving and producing real, exportable goods as evidenced by its perpetual negative trade balance (2) artificially low interest rates that have perpetuated Americans' lack of savings and over-borrowing, and (3) an aging demographic that is barely growing. These phenomena, which I discuss in greater detail below, have resulted in negative trade imbalances, over-indebtedness on the part of America's citizens and governments (federal, state, and local), rising prices, and perpetually high unemployment.

In part two I provide