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The idiom itself has a long history of existence in the daily language or in the investing related topic. Here are some explanations about the idiom in the Internet:

don’t risk everything all at once.

To put all your eggs in one basket is to risk losing everything all at one time. Example: My father is a very careful investor; he never puts all of his eggs in one basket. If you had a certain number of eggs, it would be safest to put those eggs in different baskets and not put them all in one basket. To put all your eggs in one basket would be to risk losing all of your eggs in case you drop that one basket. Example: The best way to gamble is to only bet small amounts of money and never put all your eggs in one basket. Example: We know that you want to become an actor and we support you, but we still want you to graduate from college. Don’t put all your eggs in one basket.

Don’t put all your eggs in one basket is a idiomatic phrase meaning that one should not focus all his or her resources on one hope, possibility or avenue of success.

The are two proposed origins of the phrase. One of them comes from a legend when King William II of England had requested hard-boiled eggs for the festival in anticipation of the birth of his second daughter. The courtier had consulted the Bishop of Sussex the night before. The bishop prophecized based on a dream he described that he should perhaps separate all the eggs to be served at the birth ceremony in different chardons, or baskets, or there may be a catastrophe at the birth ceremony. The courtier failed to heed his warning and subsequently when a servant knocked over a chardon, all the eggs were lost.

The second proposed origin is derived from the Easter Bunny. During the Seven Years’ War (1756-1763), due to shortages in food in England, many households could not afford to make Easter eggs. Back then, Easter eggs were not chocolate, but actual eggs. Eggs that were made were instead sent to the soldiers so they could consume (though eggs were considered a luxury and were only given to commissioned officers, rather than all the soldiers). One commander, whose battalion was the recipient of such eggs had made the fatal error of concentrating all his artillery close together in one adhesive unit in the Shenandoah Valley during the Battle of Minorca. Because the artillery commanders are commissioned officers, many easter eggs were lost, because he had put them all in one basket. This is another proposed source for the term.

In more contemporary context, the idiom Don’t put all your eggs in one basket becomes commonly related with diversification concept in investing / finance. Here are some explanations about diversification from wikipedia :

Diversification in finance is a risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment.

A simple example of diversification is this one. On a particular island the entire economy consists of two companies: one that sells umbrellas and another that sells sunscreen. If a portfolio is completely invested in the company that sells umbrellas, it will have strong performance during the rainy season, but poor performance when the weather is sunny. The reverse occurs if the portfolio is only invested in the sunscreen company, the alternative investment: the portfolio will be high performance when the sun is out, but will tank when clouds roll in. To minimize the weather-dependent risk in the example portfolio, the investment should be split between the companies. With this diversified portfolio, returns are decent no matter the weather, rather than alternating between excellent and terrible.

There are three primary strategies used in improving diversification:

1. Spread the portfolio among multiple investment vehicles, such as stocks, mutual funds, bonds, and cash.

2. Vary the risk in the securities. A portfolio can also be diversified into different mutual fund investment strategies, including growth funds, balanced funds, index funds, small cap, and large cap funds. When a portfolio includes investments with varied risk levels, large losses in one area are offset by other areas.

3. Vary your securities by industry, or even by geography. This will minimize the impact of industry- or location-specific risks. The example portfolio above was diversified by investing in both umbrellas and sunscreen. Another practical application of this kind of diversification is mixing investments between domestic and international funds. By choosing funds in many countries, events within any one country’s economy have less effect on the overall portfolio.

Although diversification reduces the risk of a portfolio, it does not necessarily reduce the returns. As a result, diversification is referred to as the only free lunch in finance.

Types of diversification

Horizontal diversification

Horizontal diversification is when a portfolio is diversified between same-type investments. It can be a broad diversification (like investing in several NASDAQ companies) or more narrowed (investing in several stocks of the same branch or sector). In the example above, the move to invest in both umbrellas and sunscreen is an example of horizontal diversification. As usual, the broader the diversification the lower the risk from any one investment.

Vertical diversification

Vertical diversification is investment between different types of securities. Again, it can be a very broad diversification, like diversifying between bonds and stocks, or a more narrowed diversification, like diversifying between stocks of different branches. Continuing the example from the introduction, a vertical diversification would be taking some money from umbrella and sunscreen stock and investing it instead in bonds issued the government of the island.

While horizontal diversification lessens the risk of investing entirely in one security, vertical diversification goes beyond that and protects against market and/or economical changes.

Return expectations while diversifying

The average of all the returns in a diverse portfolio can never exceed that of the top-performing investment, and will almost always be lower than the highest return. This is unavoidable, and is the cost of the risk insurance that diversification provides. However, strategies exist that allow the portfolio’s manager to maximize returns while still keeping risk as low as possible. Although detailed calculations are beyond the scope of this article, these strategies seek to maximize returns by giving different portfolio weights to investments based on their risk and return expectations.

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