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It means don't risk everything all at once. 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".
Even if you are new to investing, this old adage explain you the most fundamental principles of sound investing. If that makes sense, you've got a great start on understanding asset allocation and diversification.

Studies have shown that proper asset allocation is more important to long-term returns than specific investment choices or market timing. Asset allocation means diversifying your money among different types of investment categories, such as stocks, bonds and cash. The goal is to help reduce risk and enhance returns.

The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.
Time Horizon

Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. An investor with a longer time horizon may feel more comfortable taking on a riskier, or more volatile, investment because he or she can wait out slow economic cycles and the inevitable ups and downs of our markets. By contrast, an investor saving up for a teenager's college education would likely take on less risk because he or she has a shorter time horizon.
Risk Tolerance

Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for greater potential returns. An aggressive investor, or one with a high-risk tolerance, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low-risk tolerance, tends to favour investments that will preserve his or her original investment.

 

 

Financial Asset Allocation Pyramid

Tier I: These are the asset which even after the worst of financial crisis like 2008 or in the recession does nothing. Their value remains intact. It acts as solid foundation of your investment portfolio.

Tier II:
These are Debt instruments which generate periodic income to you. These are relatively safe but one need to check the financials and ratings before investing in corporate papers. On the other hand Government Securities funds are more volatile but carry no default risk.

Tier III:
Blue chip stocks are the large, well-capitalised companies. That even in a severe economic recession or downturn, these companies has large probability to survive. The stock price may dip aswe have seen in year 2008 but not a single blue chip company fail or lose its market share substantially. If you panic and sold, you may lose money but if you hold on, these stocks eventually recoup their losses.

Tier IV:The Mid cap companies fairly large companies aspiring to become a Blue Chip companies. Since not all of them will be future Blue Chip hence the risk. Thematic stocks rally in a certain business environment as we see in Tech rally in late nineties and infrastructure and real estate in 2004-2008. These become riskier when the rally become bubble and post bubble burst, they lose substantial value, which is difficult to recoup.

Tier V: This is for someone with good financial knowledge but even then the percentage of investment in commodities, derivatives and small cap stocks should be minimal.
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The Investment Clock

Investment experts have often looked to a well-respected technique called The Investment Clock to work out what they should do with their money next and in order to determine where we are in the current investment cycle. The economy runs in identifiable cycles,whilst a clock is an instrument of precision, economics is not.

The Investment Clock has been around since it was first published in London's Evening Standard in 1937.While not flawless, the Clock often provides a useful guide for making investment decisions and can be very accurate at predicting what might lie ahead in the economic cycle. The real difficulty is determining exactly where the hand on the Clock should be placed at any given time.
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Check your
Risk Tolerance
Understand the
Asset Pyramid
Allocate with
Investment Clock
 
 
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