The world is always changing, and relying on one technology, investment, or crop is risky. History gives us many examples of the dangers of depending on one thing.
The decline of the Gros Michel and the recent CrowdStrike outage are good examples. What investment lessons can we learn from these events? Let’s find out.
Monocrops: A Lesson in Overreliance
Does anyone remember the Gros Michel? If you ate a banana prior to 1950, it was probably the extremely popular and widely cultivated variety Gros Michel.
An overreliance on “Big Mike” meant that commercial production ground to a halt when this cultivar proved susceptible to a fungal disease called Fusarium Wilt which spread across the globe.
The CrowdStrike Outage: A Modern Risk
Fast-forward to today, and we see similar dangers in our reliance on technology. Take CrowdStrike, a major cybersecurity global company.
A recent CrowdStrike outage caused big problems for industries like travel, shopping, and banking. For instance, airlines cancelled more than 10,000 flights worldwide. This showed the risk of depending on one tech solution.
The global effects of this outage were serious. Would such chaos have occurred with more diverse security measures implemented? This is unlikely.
Overreliance in Investments: A Financial Risk
These examples remind us of the risks of overreliance, including in investments. Putting all your money into one type of investment or strategy increases your risk.
We can't predict the next plant disease or tech outage, just like we can't foresee the next market crash. But we know a market crisis or crash can be disastrous for investors who rely on one type of investment.
Diversification: Building a Strong Portfolio
Spreading your investments across different assets and sectors is necessary to reduce risk and protect your financial future. Here’s how to build a strong, diversified investment portfolio:
Domestic vs. international: Investing in both local and international markets protects you from economic problems in any one country.
Equities vs. bonds: Balancing stocks with bonds gives you growth potential and stability, as bonds often do better when the stock market is unstable.
Large cap vs. small cap: Including both established (large-cap) companies and emerging (small-cap) companies captures growth opportunities while keeping some security.
A portfolio that includes a mix of assets in different countries and continents reduces your risk.
Conclusion
The first step to secure your investments is to understand the importance of diversification. Once you do this, create a diversified investment portfolio. This is where we, at JDH, can help you build a customized portfolio that meets your goals and needs.
Don’t wait for the next crisis. Contact us and start building a strong and diversified investment portfolio.
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