Diversification: Why shouldn’t I put all my eggs in one basket?

Speaker A00:00:00

Have you ever heard that saying, don't put all your eggs in one basket. It's kind of an interesting way to think about it. We're going to talk about a big word today and it's called diversification.And I got this great question from a listener. They said, Ralph, I keep hearing that I should diversify, but I'm not even sure what that really means. How do I know if I'm actually diversified?And I thought that's a great way to look at this because so many people hear a big word like diversification, a fancy word, and they wonder, what is Ralph talking about today? I threw some big words out as we talked about this investment series, but it's really a fancy word for a very simple truth.And that's don't put all your eggs in one basket. Because the truth is if you do that, if you put all those eggs in one basket, you make one wrong move.Let's just say you own some stock and let's say you decide, I'm just going to buy one single stock. Well, if that stock takes a hit in value, guess what, you get hurt.So diversification is really nothing more than spreading out your money over multiple investments because in the end it helps protect you. So on today's show, let's protect those investment eggs.This is Financially Confident Christian, your daily dose of gospel, grounded insight and faith driven tips to help you break the cycle of financial shame with confidence. Hello there. Welcome to the show. I just want to thank you for joining me. I truly appreciate the confidence you put in me every day.And the truth is, in my 30 year career, I've seen people lose big. I'm talking about big losses when they had money just in a single company. All of us have heard about those sure things at work.Think about the water cooler talk we had with that friend from work or that colleague and they said, oh, you absolutely have to invest in this. This is a sure thing. But the truth is you got to be careful of those. And that's why I want to talk about diversification today.Because many times in my 30 year career I've helped people weather the storms. And listen, if you're in the market, there are going to be storms in the market. Let me tell you about a story.I had a client one time, this client was a very good person as far as understanding investments. But the problem was they worked for a company and they had all their investments in that company and I understood that they were bought into it.They work there. They really were a believer in that company. But the problem is the economy took a hit, the company struggled. This person ended up losing his job.And the problem is when he lost his job, he not just lost his current income, but he lost most of his retirement investments, all because he was all in that one thing. He had all his eggs in one basket for diversification. Because the truth is, diversification would have prevented this.And I love what Warren Buffett says. I've used Warren Buffett on this show a couple times now. And he had this great quote.And I think we just really need to take a minute and think about this. What Warren said was this. He said, diversification is protection against ignorance. It's how everyday investors avoid disaster.And I thought about that for a second. That is a great quote from Warren. Now, this might come off as being a little brash, but basically what he's saying is don't be ignorant. Diversify.Don't leave all those eggs in one basket. And now you're probably thinking, okay, Ralph, I get it. I'm going to the grocery store, I put my eggs in a nice container so they don't get broken.I'm going to do the same thing with my investments. But now you're saying, Ralph, how do I make that happen? How do I actually put that into practice? And the truth is, it's really all about balance.This whole 30 day investment series, if you really want to boil it down, is all about balance. And I think about one of the founding fathers of America. His name was Ben Franklin. We've heard a lot of things about Ben Franklin.But one of the things that Ben Franklin said so many times was do all things in moderation. And that's really what we're talking about here. Don't go to any extreme with one particular investment.Because the truth is, and this is what diversification really, what it really means when one investment struggles, those other things in the basket help to balance that. It's sort of like your rescue. Now, I'm not just talking about different stocks.A lot of people say, okay, Ralph, you could just put different stocks, buy different stocks. That's not at all what I'm talking about, actually. I'm talking about going a little deeper and I'm talking about mixing those things across assets.Now that's another big accounting word. A lot of people think, what does assets mean? What I mean by that is different types of investments.For example, maybe you invest in stocks, you can buy different stocks. Maybe you invest in bonds, they're not in the stock market. Or maybe you do cash. Now, when I Use the word cash.I mean, things like certificates of deposit or maybe money market accounts with the bank. But not having all those things under just one thing. Because here's the truth.Each of these different asset classes behave differently, and they behave differently intentionally. So. For example, let's say the stock market is having a downturn. But what we've seen traditionally is the bond market will come up.Maybe the bond market is not doing well. That's when the stock market might rally. Or Maybe that's when CDs or money market accounts are really doing well.Because the truth is, even in the stock market, this is the thing a lot of people don't understand. Even in the stock market, we need to diversify there. Maybe we want to invest in U.S. assets, maybe we want to buy U.S. companies.Maybe we want to look internationally. There's some great international investments. Again, you have to understand what you're getting into.We also have to diversify as it relates to small and large companies. A lot of people think, well, I'm going to buy that Walmart stock, I'm going to buy that Amazon stock or whatever those big stocks are.But the truth is, there are some great diversification strategies in middle and smaller stocks. One of the things I talked about on the show a couple days ago was using money market funds or ETFs, or any of those type of investments.Because the truth is, here's the great thing about those type of things. They offer diversification in a single purchase. You're not just buying one stock. You've got a fund manager.And I want to encourage you to go check out all of our episodes. You can do all of those at Financially Confident Christian. But in the last few days, I talked about that.But the big takeaway today is you've got to do a reality check. A lot of people say, Ralph, okay, great, I'm going to diversify. I'm going to have no risk. Here's a sad truth.Unfortunately, no matter what you do, there's always going to be some risk. You can't eliminate all the risk. But by diversifying, by not putting all those eggs in one basket, you can make it more stable.Now, one of the things I like to do with the show is really dive down into Scripture. And I found a great book or a great verse from the book of Ecclesiastes. This one comes from ecclesiastes, chap. Chapter 11, verse 2.And I've used this the last few days as well. And this is what it says. It says, invest in seven ventures. Yes. In eight you don't know what disaster may come upon the land.And I thought, okay, Ralph, how do you apply that to diversification? And I thought about, I said, you know what this is really doing? Scripture's teaching us diversification as wisdom. What is the word saying?It says invest in seven ventures. Yes, and eight. It doesn't say to go invest in one venture. Just like my client learned. He was so sold into one thing. And I get it, he worked there.That was his life. That's what he saw. But even the Bible's telling us, don't put all your eggs in one basket.Well, how about we pray together Now, Father, we just thank you for this gift of diversification.And Lord, sometimes we get greedy and we want to go get chasing after those sure things, Lord, but we thank you so much for the wisdom to spread that risk, Lord, and the opportunity to do things that help us to not put all our eggs in one basket. Lord, we just are so grateful for the resources that you us on a daily basis. We don't deserve it, Lord, we just thank you so much.And Lord, we trust in your provision and we remember we don't trust in that stock market, Lord, but we trust in you. And we ask this in complete confidence in the name of Jesus. Amen.So your big goal for today, and it's really quite simple, today I want you to find some extra egg baskets. Yeah, it's really that easy. I want you to look at your investments, do a deep dive and say, am I holding just a few stocks?Listen, I've counseled many people in my 30 year career. They didn't even realize what they were invested in. So get those statements out, take a look at what you're investing in.If you've got a broker, call your broker. If you're doing a 4 to 1k at work, contact your HR people and really understand what you're investing in.Because if you add that diversification, you're going to build that balance. So again, big recap for today. Don't put all your eggs in one basket.If you don't learn anything else I said today, remember this, don't put all your eggs in one basket.Spread those assets across different markets and, and different asset classes like stocks, bonds, mutual funds, ETFs, certificates of deposit, money markets, and again this, there's no guarantee to this. I don't want you to leave today showing. Well, Ralph said if I'm diversified, I can never lose money. I'm sorry, that's not true.But these things do do this. They lower the chance of disaster. Because the Bible reminds us this wisdom is in preparation and balance. See, there's that word balance again.All right. One of the things I would really encourage you to do, one of the things I really am trying to do is I'm trying to grow this show.One of the ways we can do that is I'm going to ask you to support the show. You can go to financiallyconfidentchristian.com/support. When you get there, you're going to see this thing that says, buy me a coffee.And I'm going to tell you, if you listen to the show for a while, I don't even drink coffee. I do have a hot tea, and I do that every day. Hot tea. But basically, a buy me a coffee is just a way to support the show.You can buy 1, 2, 3, 4, whatever you're looking to do. And you might be saying, wait a second, Ralph, what are you going to do with that money? It's not to profit me. It really isn't.I want to do this so I can grow the show. I want to market the show.I want to go advertise in more areas so we can reach more people, we can spread this knowledge and try to break that financial shame that so many people are suffering with today and help them find confidence. So, again, if you would support the show, I would greatly appreciate it. You go to financiallyconfidentchristian.com/support.Now, tomorrow on the show, we're going to answer this question. Why is it when we know what we should do, we don't do it?Listen, you might be thinking, Ralph, I can't wait till tomorrow because I'm right in that team. Well, tomorrow I'm going to break it down and we're going to talk about how to be more successful.Even when we know what we should do, why don't we do it? So make sure you join me tomorrow and today I'm going to charge you with this. Go be a financially confident Christian. I have confidence in you.Have confidence in yourself. You can do this. God is with you. Stay financially savvy. God bless you, and you have a great day today.