Diversification. Should you put all your eggs in one basket? It depends on the eggs, and the basket.
With reference to you, your career, your purpose and success in life you most certainly should put all your eggs in one basket and as Mark Twain said, Watch That Basket.
You Must Invest In Yourself
In your own development and achievements in life. In this case, the basket we are referring to is a gift and you will realize the greatest benefits of that gift when you put all your energy and effort into developing your true best self.
With reference to money and your financial future, you absolutely should not place all your eggs in one basket. This is financial suicide.
Three Examples:
Person A
Person A worked for 35 years diligently putting all his savings away for retirement in stocks and bonds his employer offered him as an employment incentive.
This year, not only has he lost his employment, but the economic pressures have placed his employer at financial risk.
Of course, leading to loss of the value of his retirement savings at a time when he needs it the most.
Person B
Person B worked for 40 years and invested heavily in real estate creating a portfolio of rental properties. 2020 was her planned retirement year.
Two assumptions drove her to go long on real estate. Her holdings now include 5 properties, with 3 highly leveraged mortgages.
Through the year one property has remained vacant. In addition, two of the four tenants have not been able to make their rent payments due to loss of employment.
And so, Person B was fortunate enough to return to full time employment to make her rental property mortgage payments to remain solvent.
Person C
Person C worked for 28 years and contributed all savings to a company pension plan. Naturally, she worked extremely hard to achieve the best possible pensionable earnings to maximize her retirement income. She planned to retire after 30 years of service with full company pension.
In 2020 her pay was cut 15%, a move the employer was forced to make to avoid layoffs.
In addition, due to the duration of economic hardship, the employer was not able to fully fund the company pension plan. Of course, this forced pension reform.
This reform has impacted the pension benefits for those still employed, leading to a forced permanent reduction in pension benefits.
With only 2 planned years of employment remaining; she will not have adequate time to create additional investments to make up the shortfall in the new company pension plan.
Person C will now work an additional 5 to 10 years to build the assets required to fund her pension goals.
3 examples with all eggs in the wrong basket.
You Must Have Diversification In Your Holdings and Income
When you build your retirement plan and invest your hard-earned money into assets that you will rely on for your livelihood after leaving full-time employment you must diversify your holdings.
Always Invest In Your Knowledge
In addition, build multiple streams of passive income that will protect you against economic uncertainty.
Diversify Market Segments For Current And Future Income
If you work in the financial services industry, and this is your sole source of income, invest in other market segments. If your employer faces difficult times you will want some form of holdings that are separate from this employer.
Diversification and Balance With Real Property
Real property holdings are not a guarantee of income stability and must be balanced with other forms of income. Real property is not a liquid investment, homes may be moving on the market this month but who knows what the future holds in store.
The Sole Source Income Trap
Relying on a company as your sole source of income and your financial future in retirement is not a safe financial foundation.
Diversify money, invest in self. You are the basket and you can label your eggs education, experience, cash, bonds, stocks, real property, relationships, health insurance, etc.
Additionally, all of our posts in the Financial Freedom Series can be found here.
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