The Capgemini and Merrill Lynch World Wealth Report 2009, a survey of high net worth investors around the world who have a net financial worth of US$1 million excluding their primary residence, outlines where they invest their money these people.

On average, the 10 million people around the world who fit this definition of ‘high net worth’ have 29% of their capital invested in stocks, 31% in bonds, 17% in cash, 18% in real estate and 6% in alternatives. such as hedge funds, commodities and private equity. If the world’s richest people take such a diversified approach, perhaps the rest of us should consider it too.

Diversification also applies to stock portfolios. Own a variety of companies, but don’t over-diversify, or as Peter Lynch, Fidelity’s great fund manager, calls it “de-worsening-ification.” That said, Lynch used to have more than 700 companies in his fund, but he recommends that personal investors have between 20 and 40 companies.

Emphasizing high-quality stocks is a strategy that still makes sense. It’s all too common to see people new to stocks head straight for the speculative end of the market: buying up small companies or trading stocks for pennies.

While not as exotic as this, high-quality companies, such as larger blue-chip companies that have experienced management and have a track record of generating rising profits and dividends, tend to outperform the long shot.

When times are good and the market is up, quality tends to lag behind, but when the inevitable tough times hit, quality shines and long shots can often fall into deep black holes.

Selling is something investors should be willing to do, but only reluctantly. Warren Buffett has often said that his preferred holding period for stocks is “forever.” What this really means is that long-term investors must endure periods of weakness or short-term stock price volatility if they are comfortable with the underlying fundamentals of the business they own.

However, this does not mean that stock investors can ignore bad news. If a company seems to be facing difficult long-term problems, prepare to sell.

Include some smaller companies. While blue chips should form the core of a stock portfolio, leave some room for some interesting small companies. Although riskier, they offer more growth potential. It may be wise to look for smaller companies that are blue chip in every way except size.

Buy integrity. As renowned US investor Philip Fisher has said, “There are too many options out there to bother with companies that are not run by honest and diligent people.”