A friend scheduled his dad on my calendar for a financial consultation—a gentleman wanting to retire early at the age of 55. Seemed like a walk in the park.
I started reviewing his assets, only to find something that sent my jaw straight to the floor. I was looking at a million-dollar portfolio of assets that had been accumulated over decades of hard work. Only one problem…
It had been stolen.
As I reviewed his records, I saw deposits going into his accounts, noticed his contributions were correct, that his money was in a secure account, and that no one had made a single withdrawal in the past several decades. He didn’t lose it to the taxman. His account didn’t drop drastically in value. No divorce took his money away.
As I scratched my head, I anxiously clicked to see where his money was invested. That’s when the horrifying reality came to light.
Bonds.
Low-returning bonds.
For three decades of this working man’s life, he had stashed his money in a diverse portfolio of bonds that averaged a 2% return.
I found out who stole the money. It was fear.
When I asked why in the world he would do something like that, he said it seemed silly to risk his life savings in an account that could go south.
I did some simple math and showed him what a healthy, well-balanced portfolio could look like. He was immediately frustrated. A portfolio that held roughly $300,000 should be sitting at well over $1,200,000.
What I was looking at was a portfolio that had lost $900,000 to fear.
The Fear of Risk
After reviewing hundreds of portfolios, there is one cancer that spreads like no other and infects everything it comes into contact with throughout the investment world: fear.
Finding out what to do with your money can be a scary decision.
- “Just throw it all in the S&P 500.”
- “Being a millionaire today is easy.”
- “If you don’t invest in crypto, you’re an idiot.”
Everyone loves to tout their investment advice as if it’s solid gold.
But there’s a truth that everyone knows, and it’s the same reason no one follows what the supposed gurus have to say.
People will always share their investment wins with you, but they will never share their losses.
Another Way
You don’t have to teach someone to be afraid. Fear is intuitive. You need to teach people how to be brave. You need to show them that it is worth it.
Risk is the same way. Everyone understands that the money they put in the stock market could disappear tomorrow. Companies bottom out, stock markets crash, and economies turn over. It’s a regular occurrence of human history.
However, there’s only one risk that is even more guaranteed than doing something—and that is to do nothing.
Out of every 10 years in the stock market, there are typically three down years. That means for any given period of 10 years, it’s almost guaranteed that you’re going to lose money for three years. That also means you’re virtually guaranteed to gain money every seven.
In a well-balanced financial portfolio, the only question you need to ask yourself is: How can you make the good outweigh the bad?
Risk Revisited
“Rule #1: Never lose money. Rule #2: Never forget Rule #1.”
– Warren Buffett
The top investors in the world are not concerned at all with how much money they could make. In fact, they couldn’t care less.
The top investors in the world—the Warren Buffetts, the Ray Dalios, the Carl Icahns—are concerned with one thing and one thing only:
How can I make sure I don’t lose money?
But Nick, you just told me I have to be comfortable losing money! This doesn’t make any sense!
That’s not what I said. I said you shouldn’t be afraid to lose money.
Approaching risk in a healthy way is about protecting your losses without fear.
How to Toe the Line
I’ve found that top investors set up portfolios for risk-conscious success, guaranteeing downside protection while maximizing upside rewards.
- First, there is wisdom among many counselors.
Always consult with an expert in any financial area. Meet with a professional who won’t charge for their time. Yes, they do exist. - Second, take action in a positive direction.
Understand that the biggest risk is taking no risk whatsoever. Don’t worry. You aren’t going to be perfect on the first try. But you will get a second chance, and a third, and many more after that. The worst thing you can do is nothing at all. - Last, stay consistent.
The biggest growth will occur through the discipline of believing in your future self. The plan will likely work when you work it. Out of every portfolio I’ve reviewed and managed, the portfolios that perform the best are always the ones that are most consistently contributed to.
Be Careful of This
Managing investment risk is the most difficult part of an investment portfolio. That’s exactly why most people fail.
Here are the biggest pitfalls that the most popular financial study in the world revealed (the DALBAR study):
- Investors almost always underperform the market.
- Emotions are your biggest downfall.
- Trying to time the market rarely works.
- A lack of discipline and consistency kills a portfolio.
- Without a financial consultant, investors perform much worse.
If you understand these challenges and actively fight against them, you’ll have little to worry about for your financial future.
What You Need to Know
In the end, even my friend’s dad left our conversation with a bright outlook on his financial future. He’ll no doubt think about our discussion many times throughout his life.
We all make mistakes—it’s part of the game.
Risk is not an option in an investment portfolio. It is a guarantee.
When I started my professional career in finance, the very first principle we learned in economics was the concept of opportunity cost.
Opportunity cost is what you give up to do something else. If you decide to wake up early to work out, the cost is the sleep you lost. If you want to spend time with your children, you might sacrifice some progress in your career.
Opportunity cost is the risk you take to pursue what you desire most. Because we live in a world where nothing is guaranteed, most people are plagued by the fear of giving up something valuable for something that might not work.
I believe in each individual and their ability to make an impact. I believe in preserving the welfare of each person and the hope that tomorrow brings. That’s why I invest.
The question is: What are you too afraid of to invest in yourself today? What is delaying your decision to secure your financial future?
If you’re ready to take the next step in your financial journey, we encourage you to start by talking to one of our financial consultants. No matter where you are in your journey, we’re excited to come alongside you and make your tomorrow brighter than your today.