“Don’t put all of your eggs in one basket!”
The phrase above comes from an old proverb, first found in print during the 17th century. It serves as the moral of a story where eggs are placed together in one basket, but then they all break because the basket gets dropped.
This popular saying illustrates how important it is to diversify your investment portfolio. By putting your “eggs” (or investments) into many different “baskets” (or asset classes and sectors), your portfolio should remain strong — regardless of market conditions.
Your portfolio can be diversified by asset classes (i.e. cash and cash equivalents, fixed income, equities, and commodities), geographical location, company characteristic (i.e. growth vs. value), current market value, dividend availability, investment companies themselves, and portfolio managers. You can further diversify by sectors within your chosen asset classes (i.e. technology, energy, healthcare and financials).
PRO TIP: Choose asset classes with opposing characteristics. That way, as one asset class moves down, the other should be moving up, and this can help soften the impact that a bear market would otherwise have on your portfolio.
With a well-diversified portfolio, you will more likely benefit from:
- stocks or bonds that could outperform the market over time due to growth potential;
- cheaper trades on stocks or bonds that are actually worth more, and;
- the knowledge and experience of various portfolio managers who monitor the market and decide when to buy and sell on your behalf.
You can begin making contributions once you decide the lump sum you wish to invest and choose the asset classes and sectors you want to invest in. You can contribute everything all at once, or make smaller contributions over time (known as “dollar-cost averaging”). Depending on your timeline and goals, dollar-cost averaging may not be ideal for you, so it is good to consult your financial planner.
Bottom line: diversifying is the best way to fortify your investment portfolio. This will protect your investments from market volatility and give you a reasonable idea of what your projected investment growth may be as you age.
Meeting with a trusted Certified Financial Planner (CFP®) allows you to benefit from their industry contacts (i.e. fund managers), familiarity with market products, and previous experience of helping others in the same financial situation. They will also suggest investment options based on your wants, needs, assets, goals, and risk tolerance so you can feel comfortable with your portfolio over the long-term.
Whether you are new to investments or you have existing ones, click here to start a conversation about building an investment portfolio you can feel confident about.