How Many Baskets Do I Need for My Eggs?

By Rick Laymon, CFP®

Perhaps one of the most directly applicable passages of scripture related to money comes to us from arguably the most successful and wisest investor to ever live – King Solomon (The “Sage of Omaha” Warren Buffet pales by comparison!) Solomon writes in Ecclesiastes:

                  “Cast your bread upon the water,
                   And after many days it will return to you.
                   Divide your portion among seven or eight,
                   Not knowing what disaster may come upon the land.”

This is, of course, the time-tested principle of investment diversification which many are surprised to learn has its origins in the Old Testament. Solomon instructs his readers in verse 1 of Chapter 11 to “Cast your bread upon the water.” Two things of note here. First, he curiously chooses bread for this object lesson. Bread has a number of important metaphorical meanings in the Bible. On a very basic level, it along with water is what we need to survive – our very provision. This meaning of this choice and putting it at risk would have been obvious to a 1st century BC Hebrew.

Second, and this is key to our application here, is that we should expect that it will return to us after MANY days, or a long time. I am reminded here of Psalm 126:5-6, which asserts that “They who sow in tears shall reap with shouts of joy!” Like Solomon, the Psalmist here is literally referring to planting seed which the people need for food (thus the tears) in anticipation of a bigger future harvest. As with successful investing, the key ingredient here is sufficient time for the seed to sprout, grow and eventually bear fruit. This process cannot be short changed and still produce the desired result. It requires time and faith in the ultimate outcome – all in due season.

King Solomon tells us to not be afraid of taking risk, but then tells us how we are to properly manage it: “Divide your portion among seven or eight, not knowing what disaster may come upon the land.” This is what we call in the investment profession an Asset Allocation Strategy. Whether it be fields to plant, ventures to invest in or companies to own in your portfolio, we must not put all our proverbial eggs in one basket. It is critical that we wisely spread out the risk among various asset classes (stocks, bonds, alternative investments) as they each have different risk/reward characteristics and will behave differently in different market conditions.

Diversification does not mean, however, that we should have multiple investment advisors. An investment advisor plays a crucial high trust role by providing wise counsel and accountability that has a far-reaching affect in your life. Having more than one quarterback creates confusion, lack of coordination and continuity in your planning, and creates unnecessary opportunity for making mistakes. Just as pharaoh appointed one man to oversee the administration of Egypt, you should do the same in choosing an advisor. If you need to help in developing an appropriate asset allocation strategy or finding a Certified Kingdom Advisor™, please contact us at info@beaconwealth.com or by phone (540) 345-3891.