From the book
Am I saying all your money should be in stocks or stock funds?
Of course not. Nobody should subject all their money to just one risk.
While it's easy to understand why people don't like risk, in truth there's nothing wrong with placing your money at risk; in fact, it's impossible not to, for even bank accounts place you at risk, if only due to taxes and inflation. Thus, every investment choice involves risk. The key, then, is knowing which risks are appropriate.
Most people are willing to gamble small amounts of money, as the popularity of lottery tickets, casinos, and football pools attests. Gamblers know they can't earn big money unless they're willing to take big risks. The secret, then, is to learn how to take risks properly.
So let's learn how to do that. Say you have $25,000 to invest for 25 years. If you choose a 5.25% CD, your account would grow to $96,621 (ignoring taxes).
On the other hand, lets say you split your $25,000 evenly into five piles as follows:
In total, you have $140,809 - $44,188 more than if you had invested the entire amount in a CD - even though you lost all of the first pile, earned nothing on the second, invested in bank accounts with the third, super-safe government bonds with the fourth, and "gambled" in the stock market only with the last fifth.