Portfolio Diversification: The Squid Game Approach

Hello Contestants,

The next round is about to commence. 

Let’s talk Squid Game, that’s right, one the most popular Netflix shows of all time, with a second season almost on the way. The series follows a group of initially unwilling participants partaking in violent renditions of children’s games, all for a chance to win 45.6 billion Won, which equates to roughly 52 million Australian dollars. 

There are a lot of lessons to be taken from the series and no, not just that the 456 players will do anything to survive. Believe it or not, Squid Game gives us valuable teachings when it comes to diversifying your financial portfolio. Let’s have a look: 

Don’t put all your eggs in one basket

This is dialogue lifted directly from the third episode of the series when the characters are faced with picking a particular shape at the start of the game. Chang Sang-Woo, one of the central characters, suggests to his makeshift team that they all split up. As they don’t know what the shapes entail, he tells them that it would put the team at a disadvantage if they all chose the same one. This applies directly to investing, the parallel is obvious. The importance of diversifying your portfolio is to decrease risk by ensuring you have your hand in a variety of assets. Most successful investors diversify their portfolios to balance the highs and lows of the market.

If you by some chance haven’t already seen the show, the shapes are revealed to be what the characters need to cut out of a piece of honeycomb biscuit. You can even think of the shapes as different types of investments based on their difficulty and level of risk. The circle can represent cash, low risk and the safest option. The triangle is low to middle range risk which is essentially what bonds are. Equities are riskier than bonds, therefore they can be linked to the star, the second most difficult shape. Then we have the umbrella, the risk was high if you picked this shape in the Squid Game. The umbrella can represent alternative investments, you know such as property, hedge funds, antiquities as well as other tangible assets. 

It’s important to remember that all investments including stocks, crypto and alternative investments rise and fall. This is normal and you’re only losing when you sell during those falls, hold steady and they’ll simply be one dip on the graph. 

Never rely on gambling as a source of income 

Whether it’s the pokies, card games or placing bets, gambling has caused financial ruin for many individuals and families. Gi-hun, the main protagonist of Squid Game finds himself in hot water at the very start of the series due to his gambling addiction, ultimately losing the money he stole from his own mother. 

Picture the markings between lanes on a road. Got that image in your head? That’s how fine the line between investing and gambling is. Yes, there are always risks in investments, however, they can be greatly reduced by taking the time to do your research and practice self-control to avoid getting greedy.

Don’t rush, Investing isn’t a race

All of the contestants in the Squid Game returned for the second round because they were desperate to win the prize money. Chang San-Woo is the perfect example of why you don’t need to race to become rich in investing. He and Gi-Hun grew up together, under similar circumstances. However, Sang-woo attended a good university becoming a top student which then led to a respectable job as an investment banker. Somewhere along the way, he made poor choices embezzling clients money into the stock market. This led to him losing the money and he had law enforcement hot on his trail. 

So whilst Sang-woo was initially ahead in the race, his bad financial decisions cost him dearly. The series teaches audiences that you don’t have to be the fastest to win, red-light, green-light, the first game was based on careful consideration. Therefore, don’t think it’s too late to hit your savings goals or to start investing. Just take small steps and make good analysed choices.

Manage your finances

As mentioned earlier, the characters of Squid Game were desperate because they made bad financial decisions. This is why diversifying your portfolio and eliminating risk as much as possible is critical. More than that though, it’s important to manage your finances in the event that  something does happen, you’re not going to be left out to dry. Budget your money and ensure you have plenty to back you up as an insurance policy just in case. 

Be willing to accept risk, those umbrellas can pay off big in the end. Remember that you’re not going to lose everything in investing, you just need to make sure your eggs are in different baskets.

Now, If we learnt all these things from the first season of Squid Game, I look forward to the lessons of the second.