The Easter Bunny has long been associated with the most significant event in Christianity. Over the years, he has become another of our highly commercialized symbols. The poor little guy has a lot of work ahead of him this Sunday as he goes around the world hiding eggs and baskets full of treats. As you go about your family’s Easter traditions, think about the lessons you can learn about investing from the Easter Bunny.
Don’t put all of your eggs in one basket
Financial advisors have long used the well-known metaphor, don’t put all of your eggs in one basket, to quickly explain Modern Portfolio Theory’s basic concept. For those of you looking for a less watered-down version of the theory, Harry Markowitz suggested that investors should combine different assets to create an “optimal portfolio,” yielding the least amount of risk for a given return. As investors, it teaches us that we can improve our risk-adjusted returns by using investments that act somewhat differently than each other. It gives us a mathematical basis for how to construct a portfolio using diversifying investments. In other words, it teaches us don’t put all your eggs in one basket.
Markowitz published the theory in a paper in 1952. In fact, it has been around long enough that there is now a post-modern portfolio theory, which itself is now approximately 20 years old. As a financial advisor, I firmly believe in the tenants of Modern Portfolio Theory, even with its faults. I question, though, who should have gotten credit for it. The Easter Bunny has been teaching us to spread out our eggs since he first arrived in America in the 1700s, well before the publication of the theory. Perhaps the Easter Bunny should have shared in the Nobel Prize in Economic Sciences with Markowitz in 1990.
Don’t forget where you hide your assets
For 37 years, I have had roughly the same Easter routine. Wake up, go to Church, come back, and hunt for Easter eggs with my family. Yes, I am 37 years old, and yes, I still hunt for Easter eggs (at the Hughes house, Easter eggs have money in them). It’s a competitive battle between my wife, son, brother, and brother’s wife to see who gets the most.
Without fail, we do not find all the eggs. Fifty eggs get hidden, perhaps 47 get found, resulting in lost assets and future surprises when cleaning out the pantry’s top-shelf. I imagine the Easter Bunny himself would never be so careless. I recognize my bias as a Financial Advisor, but I believe people who prioritize organizing their financial affairs are less stressed and more focused on their path towards achieving financial goals. Small things like having your document folders in order, keeping your beneficiaries up to date, and tracking your budget helps keep track of exactly where all your financial Easter Eggs are where they are going. Our most recent newsletter has some financial spring cleaning tips that you may find helpful in trying to avoid the Egg hunt at a random moment’s notice.
Remember what is important
Easter itself, the celebration of The Resurrection, brings families together each year in celebration. Roughly a year after things looked and felt pretty bleak, things are finally different in 2021. With the distributions of vaccinations, lifted restrictions, and folks are feeling more comfortable, you may find yourself celebrating back as a group this weekend. The last year has been stressful on many levels, one of those financially. Remember that the most important things in life are not found on a balance sheet. Let the Easter Bunny add some joy and delight to your holiday, and cherish the time you get to spend together with your family and friends.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment loss. As with any investment strategy, there is the possibility of profitability as well as loss.