4 Investment Lessons You Can Learn from an Easter Egg Hunt

April 10, 2023 Mutual Fund

Easter has arrived, and with it comes the arrival of the Easter eggs and baskets full of treats. Although Easter is a religious event, several of its practices, such as the use of Easter eggs, are likely derived from pagan traditions. An egg, the ancient symbol of a new life, has long been associated with pagan spring festivals. Easter eggs are thought to depict Jesus’ resurrection and emergence from the tomb. Decorating Easter eggs is a practice that dates back to the 13th century. Baskets filled with decorated Easter eggs have become the most common sight associated with Easter celebrations.

Every year, my friend Jennifer hosts an Easter brunch at her place. She recently called to invite me to this year’s Easter celebrations, which will take place on April 09, 2023. She arranges an Easter Egg Hunt in her yard, and many children participate in the hunt. It entails gathering various colours of eggs that are hidden in various locations, and the one with the most eggs in their basket wins. The eggs are properly hidden, so all of the children have a fair chance of finding a decent number of eggs. I recall how the kids participated in the Easter Egg Hunt last year, and it made me realise that we can learn something from this event.

It’s time to embrace the bits of financial wisdom we can get from the Easter celebrations. Even if you have never done an Easter Egg Hunt or witnessed it, this Easter weekend, there are some investment lessons you can learn from the elements contained within it.

1. Do Not Follow the Herd Mentality

When participating in an Easter Egg Hunt, children are likely to congregate in one location to look for hidden eggs. The first thing that occurred to me was that this is exactly how most investors behave. Many investors flock to the latest market trend and make investments following the footsteps of other investors and/or the majority, known as the herd mentality.

When it comes to investments, it can be easy to do what everyone else is doing. Since everyone appears to be investing in the same sector, they can’t all be incorrect. Nevertheless, this overlooks the fact that your investment objectives and circumstances should be key to your strategies. An investment that is ‘right’ for one person can be ‘wrong’ for another.

However, herding may not always help you stay safe; occasionally, investors are oblivious to whether the herd is approaching a cliff that leads to a steep fall. You may end up committing irrational financial decisions that are inappropriate for your portfolio. Just like during the Easter Egg Hunt, following the crowd in the market is not likely to lead to positive outcomes over the long run. If you frequently find yourself on the same side as the masses just as the trend begins to flip, it is time to re-evaluate your investment method and begin thinking differently.

[Read: How to Overcome Behavioral Biases that Impact Your Investment Decisions]

2. Aim for Right Asset Mix

Just like you would load your Easter basket with a variety of coloured Easter eggs, you should deploy diverse asset classes in your portfolio. Asset allocation spreads portfolio risk across asset classes. For example, investing in a combination of equity and debt will cushion your portfolio from the impact of a dip in any single asset class.

Investing in a variety of assets that are not highly correlated allows investors to potentially achieve higher returns while taking on less risk than if they just invested in one asset class. Another advantage of asset allocation is the opportunity to benefit from changing market conditions. In different economic circumstances, each asset type performs differently. Equities, for example, tend to do well during periods of economic expansion, whereas bonds may be more stable during periods of economic downturn. By diversifying your portfolio, you might potentially benefit from market upswings while limiting losses during market downturns.

[Read: How Multi-Asset Allocation Funds May Help You Cushion the Downside Risk in 2023]

3. Do Not Put All Your Eggs in One Basket

During the Easter Egg Hunt, children rushed around to get as many eggs as they could to fill their baskets. One child who had filled his basket with eggs was strolling when he stumbled and broke all the eggs in the basket. On the other hand, a kid had two eggs baskets, one on the bench and one in his hand. In this manner, he reduced the possibility of losing all of his eggs at once.

Similarly, when it comes to investing, diversification is the key. When you invest in a single asset class or industry, you introduce concentration risk into your portfolio. Investing without diversification reduces your chances of achieving high returns because your portfolio will perform well only when the specific asset class or industry performs well. On the other hand, diversifying your portfolio across equities, debt, and gold helps you generate better risk-adjusted returns. For example, if the equity market falls, a portfolio comprised of debt instruments and cash may serve to mitigate losses and give some stability.

4. Have a Long-term Investment Approach

Children who participate in the Easter Egg Hunt do not give up seeking eggs until they locate one. Similarly, when investing in mutual funds, particularly in equities, investors should take a long-term perspective. Macroeconomic events will always influence dynamic market conditions, indicating that the sky is falling and that now is a bad time to invest. Long-term investors, on the other hand, will have the horizon to ride out the downside losses.

Steer away from investments you are tempted by simply because they’re claiming to deliver sensational returns and focus on your long-term plans instead. You should not invest just because their price valuations are going to rise this week, this month, or even this year. You must make wise investments in worthy mutual funds with the goal of achieving significant long-term returns.

To conclude…

You should invest in two things all the time: Your ability to make money and your ability to make money work for you. Another important lesson that any investor should learn is the value of arming themselves with financial information. Financial literacy is an important life skill that assists investors in understanding the principles of investing and financial planning. If you are financially informed, you will be able to grasp better and apply the aforementioned investment lessons.

This article first appeared on PersonalFN here