LOOK AT IT THIS WAY
There once were two hikers. The first, Michael, wanted to do everything by the guidebook. If the book said to take one particular road because it was shorter, he would do so. If the book said the best place to camp was by a certain clump of trees, he would obey.
The second hiker, Maria, was content to follow her own course. Yes, Michael’s suggest route might be shorter, but she was content to take the long track around the lake because of the views. Yes, the camping spot was popular but she preferred a private spot in the valley.
Michael also convinced himself he was a thrill-seeker, aping the guidebook’s suggestion of a hair-raising climb over a rocky range. Maria, meanwhile, stuck to her instincts and chose a more sedate track, allowing her to spend more time looking at birds instead of watching her feet.
The right way to go
Investment can be a bit like this long-distance walk. Some people think they have to do everything according to the guidebook, sticking to routes they might otherwise not choose for themselves or taking on risks they might not feel entirely comfortable with.
A wise financial planner will tell you, however, that the best route is the one which gives you the best chance of getting to your destination safely. It might not be the plan that everyone would prefer to adopt. But that is the nature of people. We are all different.
For instance, you may prefer not to increase your exposure to riskier stocks, even though the expected return may be greater. Instead, you may load up your portfolio with more low-risk government bonds. Like Maria, safety means more to you than the thrill of the alternative.
The point about investment portfolios, like hiking routes, is there is not one perfect way. It will depend on each person’s goals, timetable, appetite for risk and what they value.
Ultimately, you should follow your own path.