Personal Finance
Don’t put all your eggs in one basket
BY: FAZAAD BACCHUS
In the world of investments, you should not put all your eggs in one basket, it’s too risky.
In primary school, we were taught this simple but very valuable principle. Most of us simply related it to the fact that if you literally did put all your eggs in one basket and the basket falls, then all your eggs would be broken, losing your entire basket of eggs. But consider how difficult it might be, as well as time-consuming to carry many baskets. It is so much easier to put them all in one basket and carry them safely.
As we grew in life while we remembered this principle, we may not have applied it to much. Let’s take for instance in the world of work, is it better to have many odd jobs or to concentrate our efforts on one? Well, definitely it’s better to have a good solid job than a few small ones. And yet I have heard many times over that you don’t bank on just one thing, but bank on many options.
So, what is the real story here or what should I do? Well, concentrated effort brings you more benefits while spreading your efforts reduces your risk. Like our eggs example, one basket is easy to carry and can be done quickly, but many baskets would prevent all your eggs from breaking at once.
Regarding investments, if you concentrate your portfolio into a single equity or sector that is doing well, you will more than likely make more money than most people in the market, but if that investment starts to fail, then there is nothing you can do but wait until it comes back up. Therefore, it is better to diversify your portfolio, in other words, spread it out.
That now brings us to the question of how should you diversify. Well, first diversification should be between bonds and equity. Equity will grow faster but bonds will protect you in market downturns. Then there are corporate bonds and government bonds, government bonds pay less but are more stable than corporate bonds. There is local equity (Canadian) and then there is foreign equity, global equity, and international equity. In each equity carries a commodity, it could be energy, technology or precious metals for example. How much to put in each equity is a job for a professional advisor, his job is to make sure that you have a very good asset allocation.
If you decide to invest or are already investing, ask your advisor how much or what percentage of your money is in bonds, local or foreign equity and then you might have a good idea if he is protecting you from markets fluctuation and has diversified your portfolio well enough to make money, keeping your risk at a minimum. Unfortunately, not too many clients look into their asset allocation and most look at the returns.
To make money in the long run in the investment market, you need to diversify your portfolio. This is not a job that you can do by yourself and more than likely will not be done by your typical bank teller as well. To make the most from your investments, it would be better speak with a qualified financial advisor.
Personal Finance
Level up your money, level up your life – three simple financial strategies for wealth creation
BY KEISHA BAILEY
Life happens.
I get it.
It’s hard enough to make the bill payments each month, much less to think about the future and trying to make things financially better. Frustration easily sets in because you want to feel more secure about your finances, but at the same time you simply don’t have enough money to invest. I believe that money is possible for everyone and with a few simple steps you can start freeing up cash to be able to invest in your future wealthy self.
If you feel like you never have enough money to invest, realize that the change starts within you. The change begins when you change how you look at money. Once you understand that money is a tool, much like a hammer is used to drive in nails, money is used to achieve the financial goals that you have for yourself.
So how exactly do you unlock the true potential of your money? When you decide to take control of your finances and direct money to its rightful purpose then you unlock the true potential of money.
Have you ever heard of the term pay yourself first? It is important that you find money from your salary to invest in yourself, just as you would pay any other expense, such as your utilities, groceries etc. Once you have cash, you will find a reason to spend, as expenses will always surface, especially now with the spike in prices resulting from inflation.
Here’s my golden rule:
50% of your income is the maximum for NEEDS (bills & utilities)
30% of your income is the maximum for WANTS (splurges and fantasy items)
20% of your income is the minimum to Savings + Investments
Here are some additional tips to support paying yourself first:
- Set up an automatic salary deduction to transfer money to an investment account monthly.
- Create a monthly budget to ensure you always have some money to invest. If you see where your expenses exceed your income, then that is a red flag and needs urgent attention. To correct this problem, see where expenses can be cut, so that you can find money in your budget for investing. Remember, we do not work to live just for today. There will come a day when you no longer receive a monthly salary, and that is when the investments that you made become even more important, by allowing you to live a quality life.
- Just start! These are two very powerful words, even if $100 is all you have to start; it is still a step in the right direction. As the saying goes, something is always better than nothing at all. Additionally, you will be quite surprised at what $100 can become when it is being invested consistently into the right type of investment over time.
I believe in your future wealthy self. I see you accomplishing all your financial goals and being secure in your personal finances.
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