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February 27th, 2014

Don’t put all your eggs in one basket

 

My wife says we should not put all our eggs in one basket.

Why not? We have been benefitting from good returns in one investment.

Your wife is correct, you should never put all of your eggs in one basket. Think about it: what happens if this investment fails to deliver on promised returns? You could lose everything.  At the Unit Trust, we live the credo of diversification:allocating investments among various financial instruments, industries and even geographical regions to reduce the overall level of risk.

By not placing all your eggs in one basket, you can reduce the risk of incurring losses on your entire portfolio. If the returns on one investment falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category.  Remember that the asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

One avenue to reduce the risk of putting all your eggs in one basket is through a mutual fund or collective investment vehicle which typically involves building a diversified portfolio of stocks, bonds and cash or other money market instruments.  This allows you to diversify your investments without the hassle of buying directly into a particular stock or bond.

At Unit Trust, the Growth and Income Fund (GIF) is an investment vehicle specifically designed to provide you with the potential to earn capital growth and dividend income and a price guarantee feature which affords you protection of capital, once the funds remain invested for a minimum of three years.  By investing in shares of local companies trading on the stock exchange, government and government guaranteed bonds, short term securities and foreign equities, we reduce the impact of volatility and risk to your portfolio. In doing so, we offer peace of mind.

Our North American Fund (NAF) offers investors the opportunity to invest in shares in companies across North America and also bonds, so our eggs are never in one basket.

Our TT$ and US$ Income Funds also offer diversified investments in fixed income instruments including bonds and deposits.

For investors who are tweaking their retirement portfolio, consider UTC’s Pension Plus, the Individual Retirement Unit Account (IRUA) and the Universal Retirement Fund.  Invested in stocks, bonds and money market instruments, these funds offer avenues to invest for the long term and offer guaranteed income upon retirement for life.

Diversification tips:

  • Never place all your eggs in one basket

It is risky having all your investments in one place. With a serious downturn, your portfolio will sustain the full brunt of the decline

  • Reduce Exposure

Creating a portfolio that includes multiple investment reduces the potential risk to your portfolio and allows you to ride out any volatility.

  • Keep Building

Add to your investments on a regular basis. If you have $10,000 to invest, use dollar-cost averaging. This approach is used to smooth out the peaks and valleys created by market volatility: you invest money on a regular basis into a specified portfolio of stocks or funds.
Your personal time horizon, risk tolerance, investment goals, financial means and level of investment experience will play a large role in dictating your investment mix.  Come in and talk to us on how we can best tailor an investment portfolio to meet your needs.