Give portions to seven, yes to eight, for you do not know what disaster may come upon the land. Ecclesiastes 11:2
Last night in our Financial Peace University class we had a lesson on investing (you can read about it here), and one of the principles that was stressed by Dave Ramsey was that when you’re investing, you want to make sure to spread out your risk by diversifying your holdings.
Remember Grandma’s advice:Don’t put all your eggs in one basket.
The verse above talks about how it’s wise to not put all your eggs in one basket, but instead to “give portions to seven, yes to eight” in order to minimize the risk that you’re taking, and increase the odds that you’ll succeed.
Ramsey gave a very visual demonstration of the principle of diversification, and why it’s so important. He brought out a dozen eggs. 6 of them he put in one basket, to demonstrate someone investing in one stock (or their own company’s stock). The other 6 he spread out over several baskets. Next he brought out a 16 pound shot put which he called “Katrina – or – 9/11” . He dropped the shot put on the basket with all 6 eggs in it, and they were crushed. The other investor – if one of his baskets was destroyed, he still had eggs in his other baskets.
One disaster and if you’re not diversified, you can be ruined, just like those eggs in the picture above.
The principle that the bible speaks of, spreading your assets around, is as sound today as it was when it was written.
What a powerful visual! At the same time, though, it is important not to be so spread out that your assets become inefficient. Judicious diversification is the key.
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I would agree with that. The investing lesson linked above talked about a good diversification of mutual funds that he suggests. As in many things, moderation is key.
Definitely wise advice…
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