Finance Analogies: Spread Your Risk

A short analogy reminding the reader that we should apply prudent investment strategies to our lives more generally: 300 words.

Here’s my third attempt to find crossover between my former career in finance and my new career as a psychologist…

The idea of not putting all your eggs in one basket is fairly well accepted. You spread your risk, putting a few eggs in a few baskets. You might drop one or two baskets but probably not the lot, thereby averting disaster. Following this principle, financial advisers will suggest that their clients invest in a portfolio of investments, rather than betting their life savings on just one or two.

We don’t always apply this principle more generally across our life though. We invest time, effort and emotions in all aspects of our lives, and to spread our risk in life makes sense as an investment strategy. How many people dedicate themselves wholly to their careers, see only their immediate family, or perhaps spend all of their spare time at the gym. These situations are great so long as nothing goes wrong. But consider the career oriented person who’s made redundant, or the person who unexpectedly gets divorced and realises they don’t have friends anymore, or the gym junky who develops a chronic injury, and can no longer get their fix of exercise. Each of these people will lose a significant source of self-esteem, comfort and coping overnight, and will have little else to turn to.

We can be dedicated to our spouse and family, but also spare some time for friends. We can be ambitious in our career whilst remembering that it’s not the only thing that makes us valuable. And we can benefit from a regular exercise routine without obsessing over it.

So, try taking an inventory of the investments in your life, and see whether you could benefit from diversifying a little. It will take more effort, but even if all of your existing investments continue to pay a return, you just never know how rewarding other opportunities might be.