“Don’t Put All Your Eggs in One Basket”

First, I want to convey best wishes to everyone celebrating Passover and Easter.  It is a special time of year. 

I think everyone understands the meaning of the idiom used in the title for this month’s article (Okay, it’s also a nod to the traditional Easter Egg Hunt).  The wisdom shared in this saying is that you should not concentrate all your resources.  A good example is that if you plan to go to college, you should not apply to just one school.  

It was not uncommon, just recently, to apply to a “safety” school, a “reach” school (or “Hail Mary” depending on your GPA) and a “target” school.  My own, unguided effort, was to apply to an “early admission because I need to get in” school, an “I vaguely know where it’s located, but the name sounds cool” school, and a “have you lost your mind, not a chance” school.  I do not regret my early admission in the least.

Today, some college counselors are suggesting applying to as many as 8 or 10.  I’ve even heard some parents talk about having little Joanie apply to 15 colleges.  In the last case, as with most sayings, you can take things a bit too far.

It shouldn’t be too much of a leap to understand how this applies to investing and even financial planning.   Diversification is critical in portfolio construction.  In retirement (or when needed), creating multiple income streams is key to financial planning.  Each of these should be part of your discussions with your adviser.

Some of the saddest stories I’ve encountered have been due to lack of diversification.  I knew a mid-level executive of a technology company who identified so deeply with his firm that he refused to reduce his holding.  Inevitably, the stock tanked, and the executive experienced a 50% drop in his portfolio value.  There are few time horizons that can withstand that kind of hit.  Simply put, concentrated positions can be catastrophic. 

Concentrations can also be represented by heavy weightings in an ownership stake in a private business or large real estate holdings.    Either can be tricky and need careful planning.  Strategic timed selling, gifting to children, or using a Charitable Remainder Trust are some options.

The other diversification noted is critical when it comes to retirement income.  Diversifying can help ensure steady and reliable income streams.  This type of planning should ideally happen before retirement and years in advance. 

The last bit of diversification I wanted to note is at the personal level.  Many, many people are projected to live into their nineties now.  Assuming retirement at 65 or so, that’s almost 30 more years of potentially productive living.  I’ve heard from no small number of folks who intend not to fully retire.  They want to continue to work and contribute in a positive way. 

If that’s the case, I suggest you begin to consider diversifying your talents.  Someone who’s already been working for 25 or 30 years can still learn and take different paths with their next journey.  Diversify your skills, your interests, and your knowledge and you can make the last chapter the best. 

If you need help with any of this, consider a CERTIFIED FINANCIAL PLANNER™ professional. A CFP® can help you think through your goals and how to achieve them.

As always, feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com