What is risk? The dictionary defines it as the possibility of loss. Sports fans understand risk. Even the best teams lose games. When the Tampa Bay Buccaneers won Super Bowl LV this year, no one complained that they had lost 31% of their regular season games. It is the final result, not the occasional losses along the way that define champions.
Investing involves risk. Some investors think they can avoid occasional losses because they don’t understand the nature of risk and the laws that govern it. Risk means the possibility of loss, and where there is a possibility, given enough time some loss will be realized. Most investment literature says, “you may lose money.” I usually correct that for investors and say, “you will sometimes lose money.”
Jeff Bezos is one of the world’s wealthiest individuals. The successful company he founded, once launched a highly anticipated product which turned out to be a colossal failure. When he was asked to explain the disaster he responded, “If you think that’s a big failure, we’re working on much bigger failures right now.” Bezos understood that risk means sometimes you fail. But he also understood that growth requires risk and perhaps the biggest risk would be to take no risk at all. Without it there can be no gain.
As an investment professional I regularly deal with risks on behalf of myself and my clients. That means sometimes I will be standing with Mr. Bezos and explaining to a client that we ended up picking a stinker. Sometime risk gets you. When it happens, it doesn’t mean you didn’t do your homework and it doesn’t necessarily mean you made a bad decision, because the decision is always made with risk in mind. It simply means that risk got you that time. If you invest regularly, sometimes you will just have to say, “Wow, why did I buy that?”
But here is the magic of it all. It doesn’t matter that the Championship team lost some games during the season. It doesn’t matter that investors occasionally pick a loser. What matters is if your portfolio is doing what you need it to do, according to the goals you have set, which goals should always take into account the risks involved.
One of my most rewarding activities is doing annual reviews with our clients where we compare their goals with the results. It would be nice to have had an undefeated season that year but in reality, I never plan on it. Taking risk means we will sometimes get investments that don’t go as planned. I am not ashamed of that. But I would be ashamed if my clients couldn’t enjoy a comfortable retirement because we didn’t take the necessary risk to obtain it. Like in sports, investing is about the overall victory, not the occasional losses along the way. Embrace reasonable risk, focusing not on the few times it bites you, but rather the bulk of the time where it pays off to your financial benefit.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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