Greed and fear in investment can lead you with egg on your face
Golden eggs and nest eggs can help teach us some valuable lessons about investing our money as we look forward to retirement. Here’s how.
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Eggs have always had a close relationship with money and wealth.
First we had the goose that laid the golden egg, one of Aesop’s fables written about 1500 years ago.
The goose hung around for centuries and brought great wealth to anyone lucky enough to find one atop a fairytale beanstalk.
More recently we’ve had nest eggs, a popular term to describe money that we’ve stashed away for the future, primarily our senior years.
Nest eggs are great because no Aussie wants to live solely on the age pension that pays a maximum $933 each fortnight – not enough to live comfortably and buy fancy omelettes at cafes.
There’s another modern egg-related saying that’s currently ringing louder than ever: Don’t put all your eggs in one basket.
The sharemarket is near record highs despite a huge amount of global health, political and economic uncertainty. People are still piling into stocks.
Other investors avoid the volatility of shares and put all their money into rental properties – but focusing on that one type of asset will bite them if house prices fall or experience a long period of going nowhere.
Business owners often put all their energy into building their business and ignore other investments and superannuation. This works for many, but some find themselves with nothing at retirement if their business has no value down the track because of evolving technologies or economics.
Anyone wanting a solid base for future wealth should spread their money across different types of asset classes, and also diversify within those asset classes.
On the Australian Securities Exchange you can buy hundreds of different companies, real estate funds and infrastructure assets. You can use ASX-listed exchange traded funds to invest in overseas tech giants, gold and other commodities or entire offshore sharemarket indices.
Property investors should look beyond basic bricks and mortar. Investing outside their own state is good diversification, and other property options include listed real estate investment trusts that own commercial, retail and residential buildings, unlisted property assets and international real estate funds.
Business owners should squeeze in some time to try to diversify their assets, and seek advice if that helps.
Diversification can prevent pain. If you’ve had a good run with shares lately, consider taking some profits and investing that money elsewhere.
You might miss out on some future gains, but that annoyance would be nothing like the financial pain you’d feel if you’re 100 per cent invested in shares and they plunge 55 per cent just like they did in 2008 and 2009. You don’t want egg on your face.
Greed and fear drive financial markets.
In the original Aesop fable about the goose that laid the golden egg, its owner became greedy because the bird produced only one pure gold egg each day. So he killed it and cut it open to try to find the source of the gold, but was left with nothing except a dead goose.
The message, that greed overreaches and that wealthy people who always want more may end up with nothing, serves us well today.
So does the warning to avoid putting all your eggs in one basket.
Originally published as Greed and fear in investment can lead you with egg on your face