Have you ever watched a squirrel scurrying around your yard, searching for or burying nuts? It’s something we tend to see quite regularly here in the Midwest, and it got me thinking about investing. How, you might wonder? Well, I was somewhat amazed that with that tiny little brain, even the squirrel is smart enough not to bury all its nuts in one place, instead diversifying its holdings throughout multiple hidey holes.
Maybe we humans, in all our infinite wisdom, should take a page from the squirrel’s book and spread out assets out a little bit. I know I do.
Broad diversification
Diversification is key when it comes to investing, and if you’ve ever watched squirrels dig up your yard looking for all the places they’ve buried nuts, you’ll realize that they’re masters of diversification. Just as squirrels don’t want to hoard all their nuts in one place, since, were something to happen to that area, they’d be left devoid of nuts, investors should also not want to put all their money in one spot.
Whether it’s in a single bank, in a particular stock, all in bonds, real estate, commodities, or even in a single, yet broadly diversified stock fund, putting all your money in one place or one type of investment can be a bad idea. Nolo.com provides this rule of thumb for proper diversification, “Subtract your age from 100 and put the resulting percentage in stocks; the rest in bonds. In other words, if you’re 20 years old, put 80% of your assets in stocks; 20% in bonds. (Most 401(k) plans contain both stock and bond offerings; you can also buy these investments through an IRA.)”
While everyone’s financial situation and investing strategy might differ, and while I don’t really like “one size fits all” type investing strategies, I’d take it a step further and say that broadening out into commodities, real estate, cash, and other asset classes and types could further diversify an investment portfolio, hopefully better protecting it against the unknown.
Investment tracking isn’t a squirrel’s friend, but they’re mine
One thing to bear in mind about diversification of investments though is that the more investments you have, the harder it can be to remember where you’ve put your money or check up on it to see how it’s doing. According to squirrels.org, “The (gray) squirrel will bury its food in hundreds of different locations, that way if another squirrel or animal finding one, the rest will remain. The squirrel cleans each nut or seed before it is hidden, this leaves a scent which the squirrel can find later in the winter.”
This is why investment tracking can be critical to diversification for humans. Our “scent” can be a simple spreadsheet or similar tracking tool that allows us to remember where we’ve “hidden” our money and in what amounts so that we can find it later.
A lost acorn could grow into a tree
But even squirrels lose their nuts from time to time. This doesn’t mean that they will remain lost forever, and sometimes a lost nut could grow into an entire tree full of nuts.
A perfect example of this occurred within my own family. My grandfather, who loved to dabble in stocks, would never leave them alone long enough to achieve any real profit. However, about five years after his passing, we learned of a forgotten stock investment that had achieved a sizeable return…largely because it had been forgotten about.
It’s a good example of what can happen when money is put away and left long enough to achieve its growth potential.
And so, maybe squirrels – with those tiny little brains of theirs – have something to teach us human savers and investors after all.
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Disclaimer:
The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.
