The proverb calls for diversifying, or placing the eggs in different baskets in order to reduce the risk of a mishap leading to the loss of all your eggs. Simple enough— the concept applies directly to investing. Investor portfolios are often diversified across a wide array of not only stocks (especially for those investing via mutual funds or ETFs), but also various asset classes (such as bonds and commodities) and geographic regions. Unfortunately, to the chagrin of many investors, while diversification sounds all well and good in theory, in practice it often feels as if it is not working.
Diversification—the Chickens come Home to Roost
Most of us are familiar with the expression “Don’t put all of your eggs in one basket.” Sage advice for all walks of life—if the fate of everything is dependent on only one thing–the proverbial basket–then dropping the basket could be catastrophic.
