What Do Bread-Making And Investing (Amid The Pandemic) Have In Common?

Many people confined to their homes during the global pandemic began baking bread to pass the time and reduce the need to purchase groceries. It also was a simple activity to do during a very complicated time. Dough can be made with only three basic ingredients: flour, water, and salt. But as bakers worldwide know, what turns it into a golden loaf of bread is the key ingredient: time.

Three Key Ingredients

Bread is known as the staff of life, or in simpler terms, as a staple of our diet. As such, it has endured for thousands of years, and over time has taken many forms — from baguettes to bagels, sourdough to rye, bannock to buns, challah to ciabatta.

While different types of bread include many additional ingredients (think raisins, seeds, eggs, and so on), all start with the basics of flour, water, and salt. Then, taking a standard box loaf as an example, the baker kneads them together into the dough. That mixture is allowed time to rise. The risen dough is often kneaded more than once, deflated, shaped, and allowed to rise again. Finally, the dough is placed into the oven, baked, and then removed to be enjoyed.

Investing follows a similar process. There are three key ingredients: stocks, bonds, and cash, which are the building blocks of a standard asset allocation. The baker — or investment professional — then combines them into an optimal mix, which we will call the balanced portfolio. Other ingredients can be added, such as alternatives or unconstrained fixed income.

The Mixture Then Needs Time

Like anxiously waiting for dough to rise, it is possible to get impatient with an investment strategy and deviate from your plan. In unnerving times, investors may feel a need to adjust their mix and move to more conservative allocations. In times of strong market performance, investors may feel the need to speed things up and lean into high-growth strategies.

But just like fussing with your dough may impede its progress, so will constant changes to your investment portfolio. Left unimpeded, growth can become significant over time. Now let’s take this concept and apply it to a balanced portfolio.

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