When I discuss risk with my clients, I often use my favorite highway analogy to help them visualize their investing journey. I tell them to start by imagining a three-lane highway:
Moderate Investors
Most people choose to travel the majority of their journey in the Middle Lane. It goes fast enough that it will get to your destination on time and you won't have to worry too much.
Aggressive Investors
You may want to get to your destination a little faster and should choose to travel in the Left Lane. You will arrive the soonest; but the faster you travel, the harder you will have to slam on the breaks when you run into traffic (market downturns).
Conservative Investors
Eventually, you will have to move over to the Right Lane as you near your exit (retirement). If you feel safer traveling slower, or if you know your exit is coming up soon, you should choose to travel in the Right Lane.
Approaching Retirement & Reducing Risk
Some may wait until the last minute to try to get over from the Middle Lane and, as a result, some will miss their exit and some will get lucky, depending on timing. Others may choose to move over to the right lane much earlier when they see an opening to avoid the stress of merging over later in the trip.
Active Traders
Weaving in and out of traffic may get you where you are going faster, but one of the most common causes of accidents is the act of changing lanes. (Fun Fact: According to official statistics, at least 33 percent of all crashes happen when vehicles change lanes or veer off the road.)
Trading in and out of the market is like weaving in and out of traffic to try to get where you're going faster. This exponentially increases your chance of crashing. We recommend picking a lane and sticking with it long-term.
How you choose to travel is completely up to you. It is a very personal journey. Deciding which lane to pick depends on a lot of factors:
How soon is your exit coming up? (When do you want to retire?)
Are you running late? (Do you have enough saved for retirement or do you need to catch up?)
How worried are you about crashing? (Are you worried about not being able to retire?)
Would you prefer a smooth ride or one where you may have to slam on the breaks every so often? (Are you comfortable enduring the ups and downs of the market?)
At Silverstone Financial, we use Riskalyze to determine the right level of risk for each of our client's portfolios. Determining how fast you are comfortable traveling on your investment journey is the first step in developing an investment strategy that is right for you. Watch this video to learn more about why we use Riskalyze:
Everyone's Risk Number is different! Find yours below:
DISCLOSURE: Silverstone Financial LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Please see our disclosures page for additional information.