Investing can be like baking a pizza or like cooking a turkey. It is an important difference.
Let’s start with pizza baking. Scorching hot oven for three minutes, with a non-zero probability that you burn something irrecoverably.
That’s baking. What does “pizza investing” look like?
It looks like picking stocks that might double in price overnight…or might go to zero. It looks like exotic assets with promises of “going to the moon.” It can also look like borrowed money—a.k.a. “investing with leverage”—to further extend your investment potential.
Pizza investing feels exciting! It is like panning for gold—you never know when you might strike it rich!
But does pizza investing work? Historical context says no! It is too inconsistent. It is too easy to lose it all. It is too risky. No safe financial plan would permit you to get “burned” like that.
Pizza investing is much more difficult than actually baking a pizza. And the downside risk—losing your money—is much worse than a bad slice of pepperoni.
Instead, invest like a turkey! Like cooking a turkey, that is.
Unlike pizzas, we cook turkeys low and slow. Cooking a turkey might take all day. We pick a consistent temperature and stick with it for hours. We let the bird sit in the oven, untouched, only checking on it occasionally. And we plan our entire dinner schedule around that turkey. We know that we need to wait for the bird to fully cook before we can enjoy our meal.
That’s cooking a turkey. But how can we invest like a turkey?
We can choose a simple, easy, long-term path. We can buy and hold an index fund for decades. It’s a long-term project. Sure, you still need to occasionally check your progress and adjust your timeline if needed. But mostly, you just set a course and stick to it!
If you pull the turkey out when it is halfway done, you will be disappointed. Similarly, a half-baked retirement plan doesn’t work. But if you give it the time it needs, both your turkey and your retirement nest egg can be deliciously fulfilling!
Just Turkey, though?
Should a Thanksgiving plate contain only turkey? No way! Your dinner should be diverse and well-balanced, and the same goes for your investment portfolio!
Could you imagine eating 1500 calories worth of gravy? Well, maybe. But it would be accompanied by plenty of turkey, stuffing, cranberry sauce, and potatoes. You can even fit in a slice of something exotic, like pecan pie. Thanksgiving is defined by its diverse cornucopia of food.
Similarly, a well-balanced investment portfolio reduces your risk of being over-exposed to any single asset type.
Perhaps your diversification means owning a mutual fund containing many different stocks. Or maybe you own multiple funds containing different assets classes—e.g., stocks, bonds, commodities, etc. If your investments ever become too lopsided—e.g., “too much turkey on the plate”—you can rebalance your portfolio to regain your target diversification.
In summary: don’t be a turkey! But you can learn from a turkey! Consider today’s Thanksgiving dinner lessons as a tasty parallel to your investing plans. Think low, slow, and long-term. And there’s something delicious about proper diversification!