Coined in the early 1600s by the author of Don Quixote, Miguel de Cervantes, the saying ‘don’t put all your eggs in one basket’ has since become a valuable metaphor for explaininghow you could manage your risk when investing in the stock market. Here's why.
Diversifying could spread your risk
Many people are reluctant to invest because they’re worried about risk. And we get it– no one wants to lose money. But while allinvesting does come with risk (and you can't eliminate it completely), not putting all your eggs in one basket by diversifying your portfolio could you to mitigate this.
Basically, if you invest in just one company, you're solely relying on it todo well– and as we know, the markets go up and down, and they can be impacted by many factors, likenews events, and market and economic trends.
'Diversifying' your portfolio means investing in a range of assets (like stocks, bonds, commodities, and property, and indexes from around the world (such as the UK's FTSE 100 orthe S&P 100 in the US), as a way to spread your risk. This means that any poorly performing investments could bebalanced out by ones that are doing better, and local events (like Brexit) could have less of an impact.
If you sell your investments when they're down, you're essentially 'cementing' your lossesand making them real. Diversifying means that if you do have tosell your investments,you're less likely to lose all your money as you can sell the ones that are performing better at that time and hold onto any that are down in value, giving them the chance to go back up in future.
How to diversify your investments
As we've already explained, diversifying your portfolio is as easy as investing in a range of assets and regions. For example, you could mix 'higher' risk investments (like shares), with bonds, which are often thought of as being less risky.
You could also mix emerging markets with more established ones, like the UK. Emerging markets are commonly associated with what we call 'developed' countries, and they could present a higher risk of 'volatility' (which refers to movements up and down in the value of your investments).
But what if you don't feel confident choosing what to invest in as you've never done it before, or you just don't have the time to do the research needed?
At Wealthify, we have a team of experts that will do all the investing for you. Choose the type of Plan you want, let us know how much you want to put in, and tell us about your appetite for risk. We'll then build a diversified portfolio and manage it for you, making changes as and when needed to help keep everything on track. Find out more about how we invest.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
FAQs
This is a piece of advice which means that one should not concentrate all efforts and resources in one area as one could lose everything. Example: Mr Tan's financial adviser urged him to be careful and not put all his eggs in one basket by investing all his money on stocks. Did you know?
What does it mean to say "don't put all your eggs in one basket"? ›
phrase. If someone puts all their eggs in one basket, they put all their effort or resources into doing one thing so that, if it fails, they have no alternatives left. The key word here is diversify; don't put all your eggs in one basket.
Why is it foolish for investors to put all their eggs in one basket? ›
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Should you put all your investment eggs in one basket? ›
One way to help reduce your risk is to not put all your eggs in one basket. In this analogy, the basket is an investment, like a stock or bond and the eggs are your money. If you put all your eggs into the same basket, and that basket fails (i.e. the share price suddenly tumbles), you may lose some eggs.
What is the story of Don't Put All the eggs in One basket? ›
The origin goes back to Miquel de Cervantes' quote in 1605 by Don Quixote: “It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.” In other words, do not risk everything on one venture, plan, idea, product or person and risk losing everything.
What does the Bible say about not putting all your eggs in one basket? ›
2 Give thou (thy) parts (to) seven, and also (to) eight, (that is, do not put all thy eggs in one basket); for thou knowest not, what evil shall come [up]on (the) earth.
Why shouldn't you put your eggs in one basket? ›
Meaning: This is a piece of advice which means that one should not concentrate all efforts and resources in one area as one could lose everything. Example: Mr Tan's financial adviser urged him to be careful and not put all his eggs in one basket by investing all his money on stocks.
What does the saying don t put all your eggs in one basket best describes? ›
diversification. The saying "Don't put all your eggs in one basket" best describes diversification. Diversification is a financial strategy that involves spreading investments across various assets, industries, or geographic regions to reduce risk.
How do I stop putting all my eggs in one basket? ›
The antidote to our old “all in one basket” relationship paradigm takes a lot of work, but it is essentially pretty simple. Open your eyes to the other baskets already in your life. Slowly invest in new baskets, whilst being real with the fact that the process of getting fulfillment in new ways does take time.
What concept emphasizes that people should not put all their eggs in one basket? ›
Risk Aversion vs. Trailblazing: The traditional advice, “Don't put all your eggs in one basket,” often fosters a mindset of risk averseness and mediocrity. It encourages playing it safe, diversifying, and avoiding the unknown.
Interesting fact about Don't Put All Your Eggs in One Basket
' The expression is most commonly attributed to Miguel Cervantes, who wrote Don Quixote in 1605.
Why do financial advisors tell their clients not to put all your eggs in one basket? ›
The logic is quite simple. If you invest in things that do not move in the same direction, at the same time, or at the same pace, then you will reduce your chances of losing all of your money at the same time or at the same pace.
What is the all eggs in one basket approach? ›
Diversification investments – the egg and basket rule
If you invest in different items, you will reduce the chances of losing more money if a particular investment goes wrong. When you place all the eggs in one basket, they all break if the basket falls. By dividing them, the risk is reduced.
What is an example of putting all your eggs in one basket? ›
to depend for your success on a single person or plan of action: I'm applying for several jobs because I don't really want to put all my eggs in one basket.
What does it mean when someone says "don't put all your eggs in one basket"? ›
: to risk all one has on the success or failure of one thing. Investors should diversify their investments instead of putting all their eggs in one basket.
What is a saying like don t put all your eggs in one basket? ›
What is another word for put eggs in one basket?
| chance | risk |
|---|
| stick your neck out | go out on a limb |
| put it on the line | take shot in the dark |
| try one's luck with | imperil |
| jeopard | gamble with |
59 more rowsThe logic is quite simple. If you invest in things that do not move in the same direction, at the same time, or at the same pace, then you will reduce your chances of losing all of your money at the same time or at the same pace.
