4-minute Money Ideas

Was Miguel Cervantes’ Don Quixote fighting imaginary windmills or market volatility when he said, “Don’t put all of your eggs in one basket?” Putting all of your assets in one basket doesn’t keep them as safe as you might think because there is always a risk that you might lose them all at once. The way to counter this is the investment strategy of asset allocation. Asset allocation, or diversification, may be even more important than picking the “right” stocks. The idea is to diversify your money among different types of assets, such as equities, fixed income, and cash and its equivalents, rather than putting all your money into one single asset class. Minimize potential losses The main reason for practicing asset allocation and having a diversified portfolio is to minimize potential losses. If you invest in a single asset class, and it does badly, you could sustain a heavy loss. However, if you spread your investments among different asset classes, if one class performs poorly, your losses could be mitigate