6 Lessons from Baking That Apply to Investing
As we’ve all hunkered down this year due to the pandemic, have you noticed that more and more of us are getting into baking? Even though we can’t as easily get together to share a meal with family and friends, we can still share recipes as a way to connect.
With that in mind, I thought I’d share a recipe that has special meaning for me: my family’s pumpkin chiffon pie, which we make every year during the holidays.
And as I was rereading the recipe, I got to thinking about how baking and investing are alike. Here are six lessons I’ve learned from making this pie that could just as easily apply to your portfolio.
1. A good recipe removes the mystery
Isn’t making chiffon pie complicated? Not really—so long as you follow the directions (see below). A good basic recipe will tell you the essential ingredients, how to mix them together, and the time involved. In a way, an investment plan is like a recipe for building your portfolio. Your basic ingredients are stocks, bonds, and cash. The measurement for each ingredient is kind of like asset allocation. And the baking time is like your time horizon. Once you have a handle on those key things, you just need to take it step by step.
2. Quality ingredients are essential
As with baking, you’ll have better success with investing if you start with good ingredients. Whether you prefer exchange-traded funds (ETFs), mutual funds, or individual stocks, don’t skimp on quality. That means doing your research on companies, fees, and ratings before you buy. Also, know that you don’t always need a lot of money to get the quality ingredients you want. With the introduction of new services like fractional shares, for example, you can even buy a “slice” of a very expensive stock if you want to add that to your mix.
3. The right tools make it easier
You could try to whip the chiffon in this recipe by hand with a whisk, but an electric mixer is a lot easier and typically yields better results. The same is true of investing. You can do it all yourself—and plenty of people prefer to do so—or you can take advantage of robust digital tools, financial planners, and/or robo-advisors to help make the process simpler and more efficient.
4. There’s room for a personal touch
Once you’ve mastered the basics, you can get creative. That’s because tastes—and circumstances—change. Don’t like walnuts? Leave them out. Too sweet? Cut back on the sugar.
You can take a similar approach with your portfolio. Too conservative? Maybe you’ll want to add some technology stocks in your allocation. Too risky? Leaven your stocks with a bit more bonds. Investing, like baking, isn’t an exact science. The important thing is to make any changes based on knowledge and experience, not on a whim. Whether you’re talking about pie or your portfolio, making change for change’s sake can leave you with a bad taste in your mouth.
5. Control the heat
Let’s say you’re in a hurry and want to turn up the heat under the pumpkin custard to help move things along. Is it worth the risk? You need to ask yourself the same thing when it comes to investing. Sure, taking on more risk might potentially increase your returns—but at what cost? Whenever you turn up the heat, whether on the stove or in your portfolio, you have to really stay on top of it or something might get burned.
6. Take your time
This recipe has been in my family for years. As far as I can tell, it started with my grandmother (though it may have come from my great-grandmother) and got passed down through the generations. My mom made it, I make it, and now my son makes it, too.
And as we’ve each taken our turn, this humble recipe has provided an opportunity to connect, tell stories, and share lessons. Whether you’re baking or investing, patience, planning, and a little practice are the best ways to ensure you don’t wind up with something half-baked. It takes time to master—but the results are well worth the wait.
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