We’ve all heard of the old saying, don’t put all your eggs in the one basket.
In the investment world, this means diversifying and spreading your investments over a wide array of sectors – most commonly, property, stocks and shares, pension funds and savings.
And while crowdfunding and investment into start-ups falls under stocks and shares, the same rule of diversification, within that space itself, makes a lot of sense.
Think about it… given that statistically around 90% of all start-ups fail, do you really think it’s wise to invest all of your liquid cash into just one opportunity… even though it does seem like a sure thing?
Wouldn’t it be better to spread your investment cash over a variety of ideas, sectors and entrepreneurs?
Statistically, most of your investments are doomed to fail, however if you pick the right one, the rewards can be very satisfying and certainly more than cover off your outlay on your entire portfolio.
But if you only invest into one business and it fails, then you have no other opportunities to fall back on to recoup your losses.
Think about it this way…
You may have £20k to invest…
You could put it all on that new Tech business your best friend has been onto you about. According to them… it’s a “no-brainer”.
And if it succeeds, then you might make five or ten times your money and turn that £20k into much more after several years. Statistically though… there’s less than 10% chance of that happening. Statistically… the most likely scenario is that you will lose the lot!
Alternatively, you could spread your risk and put £20k into 8 different opportunities.
Maybe £4k into that tech company… another £4k into a new medial innovation… and the other £12k divided equally amongst six other interesting businesses you like.
The chances of one or more of these taking off is far higher than just putting all of your eggs into the one basket… and hoping that the one tech company becomes the next Unicorn!
Let’s be honest… no one knows how well a business will go and what’s around the corner. There are so many risks and extraneous circumstances that decide whether or not a business succeeds or fails.
But like anything, if you spread your risk over various sectors, then the chances of backing a winner, are far higher.