Core Principles Series – Principle #1
“Don’t put all your eggs in one basket”.
The practical origin of this eggs in a basket phrase comes from the common sense wisdom of placing eggs gathered from the chicken hutch in more than one basket so that if you were to fall in the process – not all of the eggs would be damaged. In the investment world, we call this principle “diversification”. When managing your money however, the principle is broader than just the basket that the eggs are in. The egg in this example is money. The basket is the type of asset that the money is placed in. Asset types are things like stocks, mutual funds, ETFs, real estate, bonds, alternatives. Beyond these asset types, additional consideration must be given to things like industry, geography, and investment time horizon.
As a reminder, the 10 principles of smart investing are:
- Don’t put all of your eggs in one basket
- If it sounds too good to be true, it probably is
- Urgent and only available today = wrong
- Follow the money
- Buy low and sell high
- The balance of risk and reward
- Fail to plan, plan to fail
- The endowment mindset
- Whose money is it?
- Fact based on an observation of one is not meaningful
If you’d like to set up an appointment to talk, please send me an email – Todd@ColwynInvestments.com