A significant divergence in the performance of certain stock groups is occurring in the market. This divergence is nowhere more evident than the performance of two market indexes, the Dow Jones Industrial Average and the Nasdaq Composite. The Dow Jones Industrial Average is currently trading about 11% off its all-time high of 11,722.98. The Nasdaq Composite, however, is down roughly 43% from its all-time high of 5048.62.

The weakness in the Nasdaq reflects the severe damage in recent months to technology stocks. Conversely, the types of groups that influence the Dow - consumers, drugs, energy - have been holding up well.

The lesson to take away from the Dow's performance relative to the Nasdaq is quite simple: It pays to have your assets spread out among a variety of stocks.

In other words, diversify, diversify, diversify.

Keep in mind that I'm not suggesting diversification across different asset classes. I'm not saying every investor ought to own stocks, bonds, cash, ostrich farms, baseball cards, and Picassos. I'm not a huge believer in owning asset classes outside of stocks IF - and this is a big IF - you plan to hold investments for a long period of time.

What I'm saying is that within stock portfolios, it pays to own a variety of stocks - value and growth, large and small, U.S. and foreign, old and new economy, Dow and Nasdaq.

If you knew what industry segments would be investor favorites, you could concentrate your holdings in those favored areas. In 1998 and 1999, for example, technology stocks carried the day, with everything else turning in rather middling results. But it isn't that easy. Trust me -- you won't be able to call consistently the best industry segments over time. It's akin to timing the market. Ultimately, you end up chasing winners and dumping stocks that you probably should be buying. That's a dangerous practice - just ask investors who loaded up on Internet stocks at the top only to see those stocks lose 80% or more of their value over the last year.

The best approach is to build an equity portfolio that includes stocks from a variety of industries. It may not show the biggest gains in any one year, but it should post steady returns for you over the long term.

The BUYandHOLD website contains links to third-party websites on the Internet. BUYandHOLD provides these links to these websites only as a convenience to users of the website. Links on the BUYandHOLD website are not endorsements by BUYandHOLD or Freedom Investments, implied or express, of the linked sites or any products, services or links in such sites; and no information in such sites has been endorsed or approved by BUYandHOLD. Linked sites are not under the control of BUYandHOLD or Freedom Investments, and we are not responsible for the contents of any linked site or any link contained in a linked site. No information contained in the BUYandHOLD website or accessed through any linked site, or any link contained in a linked site, constitutes a recommendation by BUYandHOLD or Freedom Investments to buy, sell or hold any security, financial product or instrument. Information accessed through linked sites is not, nor should be construed as, an offer or a solicitation of an offer, to buy or sell securities by BUYandHOLD or Freedom Investments. BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy, and any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.