Don’t Put All Your Nest Eggs in One Basket – The Importance of Diversification
“I will never own enough of any one thing to make a killing in it nor will I own too much of one thing to be killed by it.”
– Nick Murray, The Excellent Investment Advisor
These wise words are as true now as they were when they were written in 1996. Unfortunately many Irish people learned this lesson the hard way during the global economic crash in 2008.
What stuck out from those people who we met in the aftermath of losing their investments was that their portfolio was not diversified sufficiently. Most were poorly advised, very often by their bank selling the latest sales targeted product. Others had simply chosen not to get proper impartial advice. The result? Sadly many lost the majority of their hard earned life savings.
A properly diversified investment portfolio doesn’t always set pulses racing. In fact it can be accused of being boring. Those seeking the thrill of picking the up-and-coming investment that everyone else has missed don’t find the diversified approach appealing. Instead they want the investment that’s currently outperforming all the others.
Decades of evidence shows that the same investments that simultaneously deliver peak performance can also be relied upon to do a simultaneous nose dive somewhere down the line, and rarely do we see it coming. Of course, your Sunday newspaper or Bloomberg will interview some investment guru that picked the star investment of last year, in a bid to make their strategy more appealing. It makes for good telly or an eye catching headline doesn’t it? Forget diversification, just pick the winner!
It is easy to get investors to do things that will end up being bad for them and very difficult to get investors to do things that ultimately ensure investors reach their goals.
Our recommendation would be don’t try this at home. If you get this approach wrong, then you’ll have to be prepared to suffer a very bad injury or even worse watch your hard-earned life savings disappear altogether.