“Don’t put all your eggs in the one basket” – you’ve probably heard this dozens of times.
It’s a good metaphor for the benefits of spreading your money across a few different investments so that if one of them (one of the ‘baskets’) takes a tumble, you’ve always got the other eggs coddled away in alternative baskets.
(Incidentally, I’m not sure how many small egg farmers use multiple baskets to harvest their eggs, but that’s real life)
So, in the interests of research, I got to wondering if we could use eggs to illustrate some other financial concepts…
Account-Based Pension – You connect the hen house to your kitchen, so that as the chickens lay their eggs they roll into a basket on your kitchen bench.
Capital Growth – the idea of the eggs growing larger and larger while in the basket until you eventually have honking huge eggs.
Financial Advice – somebody comes over to work out how many chickens you need for you to get the number of eggs you need now, and in the future.
They’ll also help you select the chickens, get the best baskets for the eggs and help map out the most appropriate route for you between the hen house and the kitchen.
They’ll also look around for somebody to give you a better deal on your egg insurance and help you to work out how many eggs you should put in the cold-basket to have a great retirement.
Franking Credits – The eggs keep creating smaller eggs in the basket (see Investment Income).
But on Monday the government stops by and takes a few of the eggs out of the hen house before you get there. They then come back on Friday and give you back those eggs, plus a few extra.
Fund Management – You arrange for somebody else to collect the eggs for you. They keep one every day but promise to bring larger eggs to the kitchen every day, with a few extra every couple of months.
Insurance – You call your neighbour and tell him you’ll give him two eggs every day, but if you ever drop the basket and lose the lot he has to give you ten right away.
Investment Income – if the eggs were to keep creating new, smaller eggs while in the basket. So the 10 you start with becomes 11, becomes 12, and so on and so on.
Investment Risk – you must get the eggs from the hen house to the kitchen, and there are two options:
– You can fill up the baskets and run there. It’ll be quicker, but you could drop some and have fewer when you get there (high risk).
– Or you could take your time and carefully pick your steps. You’re more likely to keep all the eggs, but you might not make it back in time for breakfast (‘low’ risk).
Passive Income – adding more and more chickens to the hen house until you’re collecting enough eggs to feed you and your family every day.
Passive Investing – You go and collect your own eggs. Whatever’s there is there (and is probably more than enough for what you’re after).
Superannuation – For every ten eggs you collect, you put one in another basket that keeps them cold for years. Over that time, they grow bigger, and also keep multiplying.
When you retire, you get rid of the hen house and live on the eggs in this cold-basket.
There you have it – eggs, the great financial educator!