A twenty-something friend of ours wants to set up a small fund for a newborn niece. He asked us what he should invest in. We offer the following millennial story. Two cousins, Jay and Zeke, each inherited $10,000 from their grandpa. On January 2, 2001, the first business day of the new millennium, they went to a stockbroker. Grandpa told both that common stocks were the best long-term investment, but don’t put all your eggs in one basket.  

Both guys thought—OK. Put half in a speculative stock with good prospects for growth and half in a safe stock. Reinvest the dividends and wait 25 years. Zeke speculated that down-on-its-luck computer company Apple was a good bet, and that nothing could be safer than shares in Coca-Cola. Jay speculated that Enron, then the darling of Wall Street, was likely to continue its spectacular growth, and nothing could be safer than good old Sears and Roebuck. The guys embarked on an adventure trip on January 3, 2001, and got stranded on an island, only to be rescued in early 2026. What do they find when they come home? Their outcomes could not be more different. 

Zeke comes home to Apple stock worth over $4.6 million, yielding nearly $20k in annual dividends, and Coca-Cola stock is worth around $12k, yielding just over $350 in annual dividends. Jay, on the other hand, comes home to nothing: both Enron and Sears went under, and the stocks are worthless.  

Was grandpa wrong? Well no. The story illustrates the pitfalls of inadequate diversification and the incredible potential of an informed but lucky guess. Had both guys invested half in an index fund tracking the Dow Jones Industrial Average and half in an index fund tracking the NASDAQ, they would each have around $100,000 and earn just under $900 in annual dividends in 2026. Investing $10k in a safe zero-coupon US bond back in 2001 would yield $38,000. Neither bank savings accounts nor CDs would have even kept up with inflation, as it takes $18,452 to buy what $10,000 would buy in 2001.  

Of course, had they collaborated and each put one quarter into the four stocks: Apple, Enron, Sears, and Coca-Cola, they’d each have over $2 million. Going from 2 to 4 stocks staves off a disaster, but hindsight is always 20/20. To get high returns, one must risk losing it all. The key: diversify, diversify, and then diversify some more!