A little lesson on Diversification


Andrew Kinsey (Head of Research and Education at GT247.com) shares a sweet yet wise memory which illustrates just how important it is to diversify your portfolio.

Some years ago, when my daughter Keren was five or six years old, we engaged in the family tradition of hiding Easter eggs around the garden. Our garden, though small, was beautiful with lots of little rocks and plants to conceal the eggs and make the hunt a lengthy one. 

It was my job to buy the eggs and of course being a father nothing is too much for his little girl. I bought the most fabulous Lindt and Ferrero Rochers for her, but without telling my wife of my brilliance!

After some time Keren was still hunting in the garden furiously, but all the chocolate I had hidden had already been found. When I told her that there were no more she burst into tears. She had desperately been looking for the marshmallow eggs, which she associated with Easter.

Talk about learning a lesson of putting all your eggs, or none as it was then, in one basket. So it is with equity investing. The bright, shiny and expensive shares are not always the best. Some cheap, honest and simple companies may offer great value in the future instead and you will be able to spread your available money around so many more opportunities. And of course if you are not sure, don’t be like me and not consult people who will help you make the right decision. Diversifying the eggs that you buy will prevent tears in the afternoon and help you sleep well at night.