It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.
The phrase was first recorded in the book ‘Don Quixote’ by Miguel de Cervantes.
This idiom has a literal meaning – if you have a few eggs and you put them all in one basket or container, you risk losing all of your eggs if you drop the basket. If you put your eggs into different containers and you drop one of them, you will still have eggs remaining.
Above phrase help us to understand better if implement it on our wealth portfolio. It is always advisable to keep your wealth portfolio diversified to keep liquidity at the time of emergency. If you put all your investments in one basket, at the time of urgency one may not be able to utilise that money. One should always try to diversify their investment portfolio keeping in mind the Goals, Risk Apetite, Time-horizon, Need and Willingness to Take risk.
One may consider the thumb rule of 100 minus Your Age to arrive at your Wealth portfolio diversification. This equation suggests, for example, that a 35-year-old would hold 75% in equities and rest in other asset classes, while a 65-year-old would have 35% in stocks and rest in other asset class. However, it depend upon person's choice as to how it allocates portfolio. Asset classes may include Equity, Mutual Fund, Real Estate, PPF, NPS, G-Sec, Bonds, FD's, Insurance Schemes, Post Office Saving Schemes, Saving Bank Account.
Your overall risk profile is composed of ability to take risk and risk attitude. Risk attitude implies your psychological comfort with market fluctuations and fall in fund value. Risk capacity relates to your financial ability to tolerate losses in investment.
One has to do thorough deep research and if needed (on case to case basis) take advise from Professional and Registered Financial Advisors (Avoid taking advice related to portfolio diversification from a stock broker, insurance agent, MF distributor, Bank employees or alikes as they tend to pitch their own products or where they get higher commissions).
With the strong research one should be able to build structured and diversified wealth portfolio with balanced weightage to lower risk options. However, one should always keep in mind that too much diversification is not good for your investment portfolio. One should always spend time to make a balanced diversified portfolio. According to one of the best Investor, Warren Buffett
Diversification is a protection against ignorance.
Think wisely!! Happy Investing!!
DISCLAIMER: Above article is only for information purpose and not intended to recommend any product specific. One may take professional advice from investment expert to take informed decision before investing.
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