How to Avoid Putting All Your Eggs in One Basket

By: Joe Morgan

Feb 8, 2024 | DiversificationInvestment StrategyLong-Term Portfolio

Prefer to listen rather than read? Pair this post with our Deliberate Money Moves Podcast: How to Avoid Putting All Your Eggs in One Basket.

The phrase in the title of this post is said to have been first used in the novel “Don Quixote,” and is written as follows, “It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.” The message, of course, is that it can be quite risky to keep all your valuables in one place.

The financial industry has co-opted this saying to mean we should spread our funds around, therefore achieving “diversification” of our investment portfolio. But let’s be honest, this goes against our human nature, right?

In high school, I took an accounting class and loved it. The numbers had to balance, and we used clean mechanical pencils on finely lined green column paper. Everything about it was appealing to me whereas nothing much else in school had ever been appealing.

In my second semester of college, I was forced to take a finance class in a long way to an accounting degree, and everything changed. It wasn’t long into that course that I realized the difference between accounting and finance: accounting records the past and finance determines the future.

My mind completely shifted, and ever since, I have been focused on finance. In 1990, I received my undergraduate degree in finance and went on to graduate with my master’s three years later. Shortly after that, I began an entire career focused on finance or, more specifically, investments.

Just reviewing my education and career, it’s easy to see how I put all of my eggs in one basket. Is that wrong? Well, not if it works out for you. And if it doesn’t? Then the good news is you can always change course.

You see, the “eggs in one basket” guide does not always apply. In areas where you have unique talent or skill, it is likely better to focus and push your efforts to stand out from the crowd. However, in areas where you lack such skill and perhaps view them as a necessary evil, you may prefer to “spread your eggs” and take what the market gives you.

The Topic of Investments

After managing money for over 25 years, I can honestly say no one beats the market consistently over time. It’s much better to take a diversified approach to the investments that will fund your 30+ year retirement!

As I said, though, we are all human and can be tempted to stray from this simple strategy. In fact, most of Wall Street prefers you continuously make changes and adjustments to your portfolio – that’s how they get paid. Further, the financial media needs you to make such changes – if you don’t see a reason to change your portfolio, why pay attention to them?

Much of the financial world – Wall Street and journalists – are stacked up against what is and has been the most consistently successful investment strategy out there. And we are continuously berated to make (quite unnecessary) changes to our portfolio.

How do we address this?

Here is a simple process I suggest you follow when you are tempted to stray from your beautifully constructed, well-diversified portfolio. Ask yourself these three questions:

1. If my decision to take everything out of the markets (put everything in Tesla/etc.) goes well, how will my life be different?

Don’t think about this just in the short-term. Consider the long-term, including the question of when you might move out of your winning strategy and the reality of what would cause you to do that. Could you retire a few years early? Maybe buy a bigger house? Perhaps you would pay off the mortgage for everyone in your family? Think it through, and make the answer real to you.

2. If this goes wrong – I mean spectacularly wrong like it drops 50% or maybe even 100% – how would my life be different?

Do you have to work for ten additional years? Does your spouse have to go back to work? Do you have to move out of state? If so, where? Again, I want you to really know and feel what it would be like if you found yourself in this situation.

3. Have there ever been things I was absolutely certain about that didn’t work out the way I expected?

Ok, I admit, this process is a bit tricky as these are very tough questions. What we are trying to do here is truly weigh the upside vs. the downside while getting a little bit out of our own perspective. We have to do this to fully understand what risk this decision is bringing to our lives.

That feeling you just got where the downside to losing everything weighed much more heavily than the upside of doubling (or more) your wealth is called “loss aversion.” It means that we will be hurt more by losing something than by gaining something even if that something is really and truly desired.

The fact we are talking about your investment portfolio here is important because you can't predict where the markets are going to go. But we sometimes believe we can do it, for now, just this one time. That is the most dangerous feeling you can have when it comes to the success of your financial plan.

What Gets in The Way?

Like many of the topics I discuss, we are the ones that usually get in the way. Perfectly rational, intelligent people will convince themselves that their company stock is going to skyrocket and will take on far greater risk than they even need to live a happy life.

Or, more broadly, normal, functioning, responsible people will become convinced the economy and markets are going to crash soon and move all of their funds to cash and “wait for a buying opportunity.”

I view both of these strategies as equally risky and if we weren’t all so humanly susceptible to them, foolhardy.

The Good News

The answer is simple yet difficult. We must build a portfolio that owns every public company possible while keeping our costs low and risk at a level we can tolerate. After that, you simply do nothing. Doing nothing is the simple part. It’s also the tricky part.

Having trouble keeping your eggs in different baskets? I can help you make the right moves based on your needs. I’m here to help. To share your comments, send me a direct email at
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