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The Importance of Diversification in Desserts & Finance

It should come as a shock to no one that whenever there is a fun or work event, I’m the first to raise my hand to bring dessert. The question then becomes, “what should I bring?” Well it depends on the event and the number of people. Will there be plates or will people be holding their desserts? Once that has been decided, there are a few ways to go: (1) Make multiple batches of the same dessert.


(2) Make multiple different desserts. There is one huge advantage of (1): it would save me time. Only one recipe to look up, one set of ingredients to buy, and one batter to mix up. However, there is a risk of just making one dessert. If could be the most amazing dessert I’ve ever made and everyone loves it. Or, it could be that everyone hates it. Maybe I under cooked it. Or most of the people there can’t eat gluten. It’s also possible that it’s just fine. Some people like it and some people don’t. But the point being there is a possibility that it is a huge hit. And, also, a possibility that it’s a bust. Now let’s chat about option (2): you make multiple desserts. Yes, there is more to manage. But, there is less risk involved. You could make some of the dessert from (1). Plus, you could make a vegan dessert for those that don’t have dairy or eggs. And a gluten-free dessert for those that don’t do gluten. Or some chocolate desserts and some not chocolate. Maybe all your desserts are winners, or maybe just one or two of them are. However, the probability that you’ve picked three bad recipes or screwed up three different bakes is much less likely. You’ve mitigated risk by producing multiple desserts. The same holds true with how you invest your money. You could put everything you own into one company, one stock, or one type of asset (housing, for example). If that company or asset takes off and does better than expected, then you’ve just made a lot of money. However, if the company goes bankrupt or a housing bubble bursts, then you’ve just lost a lot of money. There is a lot of risk.

If, instead, you invest your money in different stocks or different assets, then you’ve reduced your risk. There is a lower probability you get a huge, huge win. But, also, a lower probability of all of them tanking at one time.

Here are a couple of ways to diversify your finances without much work. By no means are these the only options, and I’m NOT a financial planner, but for those that are interested…

Mutual funds are a professionally managed group of diversified holdings. You can invest in mutual funds and you get the advantage of someone else choosing diversified holdings for you.