Diversification is a crucial aspect of investing, and the timeless advice of not putting all your eggs into one basket remains a guiding principle for successful investors.
Despite what day traders believe, diversification not only enhances your chances of returns over time but also contributes to maintaining mental sanity by preventing an obsession with market timing. If investing for you means tracking the markets all day, it’s a day job, not passively working for you behind the scenes.
Whether it’s well-known indices like S&P 500 or the Dow Jones, sports betting, or your local coffee shop, all these markets fluctuate based on demand, emphasizing the need for a rainy day fund and a safety net in case things don’t go as expected.
Despite the allure of adventure and living on the edge in this post-pandemic age where Millennials in particular have been open about their concerns for saving and planning and YOLOing it up, most people prefer comfort and resist change. This inclination both yields positive and negative results, as markets generally dislike uncertainty. Yet what’s given is that what’s certain is uncertainty in life!
Diversification, when applied correctly, can work in your favor. As we age, diversifying various aspects of our lives, from income sources to experiences, becomes vital for a fulfilling life. Some might associate diversification with being too conservative, not living life to the fullest, and not taking enough chances on themselves. This is usually the cause of over-diversifying and or sticking to the same risk tolerance across everything in life.
To enhance opportunity in any part of life, you have to take some sort of chance and step into the unknown. This requires taking calculated risk which may result in substantial reward or nothing at all! At least the feeling of trying and having it not work out is better than not going for it at all.
What most people forget is that when they feel trapped and no opportunities are coming their way, it’s usually not because they aren’t putting themselves out there or trying new things. Most of the time it’s because they stick to the same risk tolerance for everything in their life.
Although it sounds strange, breaking down your diversification further or risk tolerance in different ways can help you better allocate your time, resources, and as a result, take advantage of more! You may be a conservative investor but sticking to that method as an entrepreneur or student may not be the best approach and could hurt your chances in the long run.
How to Get Lucky Even With a Low Risk Tolerance
While being diversified is crucial, spreading oneself too thin may lead to inefficiency and unaccomplished tasks. With my challenge of balancing MBA studies with other work and life commitments, I’ve learned the importance of splitting up my time and setting a specific risk tolerance for each activity not only diversifying. Balancing socializing, attending events, and focusing on daily writing requires my attention and energy in different ways. While we often overestimate daily tasks and underestimate yearly achievements, estimating the amount of risk or diversification you’re willing to take for each task can enhance preparedness and ensure more fulfillment.
For example, here’s a rundown of typical day-to-day activities most of us engage in that diversify our lifestyles:
Exercise, eat, socialize, school, work, hw, investing, blogging, creating, coaching/mentorship, family and chill time.
Although this list isn’t extensive, these are typical activities many people my age in their early twenties try to squeeze into a day or two. Just by doing more than one thing, I’m diversified but that’s not enough.
What you put in is what you get out out of everything and it highly depends on the risk you’re willing to take for each. Less risk = lower chances of opportunity.
If you feel overwhelmed by something or stuck, set a lower risk tolerance for yourself to be able to accomplish it better. If you’re more open to taking more risk on another activity, stick to a different course of action.
You may be really aggressive with your workout and want to prioritize that versus being more conservative with your hw when know you need to take it slower. This can be a helpful method for you to better block out your time and leave more room for opportunity in unexpected ways. It’s all about setting realistic expectations and adjusting your input based on your priorities.
To diversify our lives effectively without feeling stretched thin, creating lucky moments, both in markets and life, requires a strategic tolerable approach. Many successful investors who chose winning stocks during unique ‘lucky’ periods did so by not overly diversifying and instead having an all or nothing approach. However, it’s crucial to recognize that day trading isn’t a reliable strategy. Instead, think of diversification as a part of your life that comes in different pieces with different demands such as tailoring it to a specific risk tolerance.
Whether you’re familiar with semi-diversification or going all-in, it’s important to remember that you should only risk whatever you’re willing to lose. While diversification is crucial, it’s not enough. Establishing a specific risk tolerance and clear expectations for each goal makes it more achievable and less intimidating, creating space for serendipity, chance, and luck to come along the way.