A boat resting on a driveway is safe from the wrath of Neptune and Poseidon. It can sit peacefully on concrete protected from waves, tides and rocks. However, a boat isn’t made to sit idle on a driveway; it’s made for the high seas. Similarly, fishing from a driveway doesn’t work either. The boat and the fisherman need to be on the water.
A boat on the water is exposed to more risk, as is the fisherman. The risks increase the further the boat travels from shore. The waves get bigger, the wind howls harder but the payoff is greater. The reward of catching an enormous fish is worth the effort.
Investing carries many levels of risk and safety. It’s possible to never leave shore and invest for safety and guarantees. If you’re concerned about losing money, you can invest your money in a certificate of deposit or U.S. Treasury Bill. These two investments will guarantee a rate of return if held to maturity. They’ll also guarantee a low rate of return as both yield about 1%. These two items may work in the short term but won’t hold water as long-term investments.
To create wealth an investor needs to have exposure to risk assets like stocks. Stocks fluctuate like a boat on the water but if held for the long term they will treat you well. In the short term, stocks rise and fall with much fanfare. When stocks fall, the media will want to know if this is the beginning of the end. It may feel like the end of times if you’ve lived through the corrections of 1987, 2000 or 2008. Despite the previous storms, the stock market recovered and sailed to all-time highs. Historically stocks have averaged a 10% annual return despite the drops.
Set a course for adventure and invest to achieve your goals. Diversify your assets across stocks, bonds and cash so you can keep your portfolio afloat!
A ship in harbor is safe — but that is not what ships are built for.” ~ John A. Shedd.
And when he got into the boat, his disciples followed him. ~ Matthew 8:23.
Bill Parrott is the President and CEO of Parrott Wealth Management. For information on financial planning and investment management, please visit www.parrottwealth.com
June 10, 2017