Diversification

A young ruler owned several racehorses. His stable was full of powerful thoroughbreds, but one yearling stood out from the others – a beautiful chestnut with a wide blaze. It had an easy gait and ran like the wind while galloping. The young ruler was mesmerized.

One day, while watching his young horse trot, he ordered the trainer to sell all the horses in his barn except for the yearling. The trainer pleaded with him not to do this, and he reminded the ruler that the other horses were champions, and they had won many races. It would be foolish to concentrate your bets on one horse that has yet to run a sanctioned race. The ruler ignored the trainer’s advice and demanded he move the horses today.  The trainer acted on the command.

The yearling continued to progress as the young ruler projected. The horse looked more majestic with each passing day.

Since the ruler sold the other horses, his stable was not generating any income, so he borrowed money to keep his property afloat.

After several months of training, he entered his horse in its first race. It won by four lengths, pulling away at the finish. His horse continued winning, and the ruler had dreams of great wealth. In addition to the winnings, he planned on retiring his horse to stud to generate more income.

At three-years-old, the horse was undefeated. The ruler enjoyed the winnings, but he continued to borrow money. The race of the year was on the horizon, and his horse was the favorite. After the race, he planned to cash in his winnings, pay off his debts, and start the stud operation.

His horse sprang from the gate cleanly and roared to the front of the pack. The horse continued to separate itself from the field, soaring down the backstretch. At the top of the stretch, the horse tumbled and threw its rider. The crowd fell silent as the ruler and the medical team sprinted to the track. The horse popped up, but it was clear it had a broken leg. They put the horse down.

The young ruler sold his farm to pay off his debts, and he lost everything.

The moral of the story? Diversify your assets.

The future is always coming up with surprises for us, and the best way to insulate yourself from these surprises is to diversify. ~ Robert J. Shiller

November 24, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

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