Words of wisdom? “Don’t put all your eggs in one basket”

The following is an extract from our research report: Do famous investment savings hold water?

“Don’t put all your eggs in one basket”– WISE score: 14/15

Durability: 5/5

This one can be first attributed to Cervantes in Don Quixote, dating it to 1605. That might be a 10 out of five for durability!

Reliability: 4/5

The Centre for Research in Securities Prices (affiliated to the University of Chicago) finds that a balanced portfolio of equities, bonds and bills delivers a better Sharpe ratio than a 100% equity portfolio over the past hundred years.[1]

Diversification[2] is not a free lunch and only offers limited potential protection in a falling market. But it has the potential to materially lower portfolio risk by reducing vulnerability to single points of failure. That point is illustrated in the chart to the right, which draws on analysis from a blog we published in 2023.

Over a 40-year investment horizon, we estimate that there is a better-than-even chance of suffering a 40% drawdown when invested in developed equities. In a well-diversified global multi-asset portfolio, we think that chance drops to just 5%.

Insight: 5/5

A concentrated high-beta portfolio can deliver high returns over the long run. However, reliably picking where to concentrate exposure is a high-risk strategy.[3] US equities have enjoyed strong outperformance over the past decade, but so did Japanese equities in the 1980s and emerging market equities in the 2000s.

Rather than picking the asset which we think is set to outperform over the next decade and taking concentrated risk exposures, we believe investors who diversify (and tilt to reflect their medium-term convictions) can potentially be consistently better rewarded.

[1] 2025 The Big Picture, Center for Research in Security Prices.
[2] It should be noted that diversification is no guarantee against a loss in a declining market.
[3] https://blog.landg.com/categories/investment-strategy/the-equity-rollercoaster/