"Don't Put All Your Eggs in One Basket": True or False?

This is not just a proverb, but a statement that Brandon, Leon, and I have heard from clients and prospective clients our entire career.  Most of the time it’s used to explain to us that the person feels the need to have multiple investment accounts at different offices and even banks.  Let’s examine this piece of advice to see whether it really is applicable to a portfolio and/or money manager.
First, let’s agree that applying only to Harvard after graduating from high school may create disappointment.  Let’s also agree that setting your sights on the CEO corner office right after your college graduation may be a little premature.  Both of these are examples of situation where exploring multiple options will help you get a step up in life.

Second, let’s agree that there is no rule that you must date many people before finding your true love.  Many clients have been dating their middle or high school sweethearts for 50 years – and never dated anyone else.  My own sister has been married for 33 years to the first man she ever dated.  Yet for every person who finds love at first sight, there’s someone who found love in their second or third marriage.

Finally, many people consider themselves to be well rounded individuals because they have many skills, interests, hobbies, and friendships.  They say they enjoy running and reading (hopefully not at the same time), watching the kids play soccer, going shopping with friends, wine tasting and travel.  All of this sounds like fun to me too (with the exception of the wine and shopping).  However, if most people were being honest and they had three hours where they could choose just one activity, it would be an easy choice.  This is because while most people do have a variety of interests, they also have a preferred interest.
Why am I pontificating on this topic?  If we can accept that sometimes it’s good to put eggs in different baskets and sometimes it’s better to keep them together, why do so many people believe that it’s a hard and fast rule to keep them separate?  And what does this mean in the investment world?

I believe the reason for this confusion is based on a misunderstanding of what it means to have all your eggs (investments) in one basket (financial firm).  Many people believe that hiring multiple financial advisors mean they have more asset diversification.  Or, on the other side of the coin, that having their assets with only one firm means that they have all their money exposed to the exact same risk.  Often this is simply not true.  This is not because all other financial offices pale in comparison to Majestic Financial.  It’s just a fact that if the advisors or the firms that they work for have the same investment philosophy or line up, you may have multiple accounts with virtually the same risks and holdings.  I have personally seen many portfolios where hundreds of thousands of dollars’ worth of investments were invested in mutual funds where 8 or 9 of the top 10 holdings were the same – often Apple, Microsoft, Google, and Amazon.  And often the portfolio held these four companies as individual stocks too.  So while your eggs are in different baskets, they are still identical.

Another problem with placing eggs all over the county is that while your eating habits may change (kids may make you eat more daily than you used to) you are now spending time running around grabbing eggs.  Of course, I’m talking about how your financial needs may change and you may need more or less risk to achieve your financial goals.  But if only 3 out of 5 advisors are aware of this, what do you expect the other 2 to do to help you – and remember that you are paying all 5 of them regardless of what value they bring to you.

At Majestic Financial, we want to be a very important part of a small group of people’s lives.  We want you to have different eggs (style of accounts, individual investments, alternative investments) but have all of the chickens on the same farm.  With three different advisors and a great staff, we can work together to help you achieve your goals while enabling you to evaluate the entirety of your assets in one statement.

Please let us know what we can do to make you comfortable partnering with Majestic Financial.  We’ll make sure the baskets are the right ones for you.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
*Any opinions are those of Sean Budlong and not necessarily those of RJFS or Raymond James. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.