This past weekend, I had the pleasure of reconnecting with a wonderful group of friends from high school to play a round of golf. Everyone threw in $10 to “the pot” for the winning team. For this golf round, we agreed we would take the average of the best and worst scores from each group with the team with the lowest average best score overall would splitting the winnings.
I’m a fair golfer, but clearly the worst in my playing group. I resigned to not likely being the low score for the majority of the holes we played but felt if I could keep from having a “blow up” hole, I could help keep our team score competitive.
The strategy was to “win by not losing”. I had decided to play within my skill set--not overswinging, aiming for safer areas, and avoiding hazards.
When working with clients, I stress this approach as well. "Winning by not losing" in a balanced approach to an investment strategy that is based on investing in investments that “zig and zag”, as well as others that “zag and zig”. Choosing investments with a strategy grounded in what’s safe, not what’s heroic, and making choices constructed on logic and not letting emotions drive investing behavior, can lead to avoiding the “blow up” month or quarter that can throw long term plans off target. This strategy means giving up the potential for outsized gains, but also giving up the potential for outsized losses as well.
Are you taking more risk with your investment strategy than you feel you should? Is it possible to implement a strategy to reduce your downside risk, while maintaining your growth and income needs? Often playing with a less aggressive approach can lead to better overall results.