At some point, we may have all been tempted to pour savings into the next hotly-tipped success story such as ‘‘Amazon’’ or ‘‘EBay’’. Bar for the lucky few, investing in just one stock can prove to be very costly. In a field of thousands of companies, investors are faced with the significant risk of picking future losers, rather than one of the few elusive winners.

Here we investigate how diversification of investments, can help maintain the balance between investment risk and potential returns.

It is a natural instinct to panic when times get tough, with regards to life or investing. This article looks at what flows of money in and out of funds tell us about investment behaviour during periods of increased market volatility. In particular, we illustrate how acting irrationally can lead to poor investment decisions and possibly even losses.