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Reducing the Risk

As a teacher and writer, one of my guiding principles is that I don’t use “$10 words.” These are words that sound highbrow or stuffy, even though they really mean something simple. A lot of finance people think big words make them sound sophisticated, but I’d rather keep things simple and clear.

Diversification is one those terms the “experts” throw around to sound smart, but I don’t mind taking the wind out of their sails. Diversification simply means “to spread around.” Your Grandma probably explained it even better: “Don’t put all your eggs in one basket.”

Either way, the idea is the same. Spreading your investments reduces risk.

Think about it. If you put all your money in a single stock, what happens if that stock bottoms out? If somebody drops the basket, all the eggs will break! This is especially true for putting your whole retirement in your company’s stock, because if the company goes broke, you’ll lose your job and all your retirement.

But this isn’t just my advice. The Bible actually says diversification is a wise idea. Ecclesiastes 11:2 tells us that we should spread our resources around multiple ventures because that’s how we keep disaster at arm’s length.

In recent years, we’ve seen trouble in the marketplace. Natural catastrophes, terrorism, political drama, high unemployment, recession and other factors have slammed into a lot of single baskets. And they’ve left broken eggs all over the place. But the individuals who have spread out their investments over several options have been protected.

Think about it this way: Money is a lot like manure. Left in one big pile, it starts to stink. But when you spread it around, things start to grow.

You may have never thought of it that way, but it’s true. So evaluate the diversification of your investments. If you have too much piled up in one spot, talk to an advisor who has the heart of a teacher about spreading things around.

Diversification reduces your risk. And that makes it a vital—and biblical—part of The Legacy Journey.