Michael Pollick Last Modified Date: March 06, 2022
It can be dangerous to put all your eggs in one basket.
When it comes to metaphorical egg transportation, it is indeed advisable not to put all your eggs in one basket. For one thing, you may only have a finite number of "eggs" to lose, and that "basket" may not be the sturdiest or most stable in the wagon. The expression "Don't put all your eggs in one basket" generally means not to risk losing everything by pinning all your hopes or future goals on one and only one option.
The danger of keeping your eggs together should be obvious once the basket falls off the wagon or experiences some other unfortunate fate. Wherever the basket goes, the eggs must surely follow. In a metaphorical sense, investing all of one's time, energy, attention or money in a single endeavor can be a similar recipe for personal disappointment or even tragedy.
While a personal investment in a future goal is a laudable idea, few people can afford to take such a risk without some sort of safety net or fallback plan.
Another interpretation of this expression is often seen in the world of investing. Potential investors are encouraged to diversify their investments rather than put all of their money into a single, and possibly volatile, investment option. It is never advisable to put all your eggs in one basket when it comes to financial markets. Investors should have some money put aside in more stable funds to survive any sudden downturns in more volatile markets.
There are several stories concerning the origin of the expression, but it may have been inspired by the real-life experiences of poultry farmers who used wagons and baskets to take their eggs to market. If all a farmer's eggs were placed in one basket, it would only take one unfortunate accident along the way to ruin his entire investment. By not putting your eggs all in one basket, you reduce the risk of having nothing to offer at the market.
So when should you put all of your eggs in one basket…
Managing one’s finances is daunting enough but adding the complexity of planning across multiple providers/institutions can make it seem not worth the effort. Bringing all of your investments to one institution can help make life simpler and more convenient. A consolidated view of your accounts, with a single company or software that provides a complete view of your finances, can make it easier to track your asset mix, tax situation, and financial life. There could also be cost savings – consolidating assets with a single company may qualify you for lower fees/commission and access to enhanced services.
Here are some ways that consolidating your accounts could help streamline your financial life.
Macro view of investments
Whether it’s to provide income, long-term growth, tax-efficiency, or some combination, you want your investments to work together. However, this can prove challenging when you have investments in multiple locations. You could be duplicating exposure to certain asset classes, sectors, or investment types, or even taking unintended risks with concentrated positions.
When you consolidate, it’s much easier to take control of your strategy and keep your intended asset allocation on target. Rebalancing – a strategy that all diversified portfolios should be implementing – becomes a much easier task with an integrated view. Moreover, it is much easier to measure performance of your investment mix when it’s all in one place.
Comprehensive financial planning is growing in popularity and can address a variety of needs ranging from establishing an emergency fund to college savings to retirement income planning. The best financial plans are fluid and flexible, changing with your needs and goals. However, this flexibility may be greatly reduced if your investment accounts are spread across multiple platforms, limiting the ability to put together an aggregate view of your investment mix.
Additionally, if you have more than one IRA account held at different institutions, it may be harder to track the amount you are required to withdraw when the time comes at age 72.  You’ll also be faced with the decision of which account(s) you want to take that withdrawal from. With all your accounts under one roof, it could be easier to evaluate and implement an optimal withdrawal strategy during retirement.
Like anything, it pays to do some homework before making the jump to consolidation. Fees should always be a consideration, and you’ll need to make sure the benefits outweigh any potential costs. You’ll also want to consider whether consolidation will mean liquidating certain investments, and possibly incurring tax consequences. You should evaluate how your accounts are kept safe, and if SIPC protection or FDIC insurance is offered.
Though it may be hard to ignore the mantra of “not putting all your eggs in one basket,” the potential benefits of consolidation may be worth your while. You may find it easier to diversify, maintain your asset allocation, lower costs, and improve tax efficiency. Most importantly, you’ll be able to plan more effectively and take control of your finances.
If you would like more information contact Brien or Sarah at Traditions Wealth Advisors: Brien@TraditionsWealthAdvisors.com