When I ride my mountain bike, I take calculated risks, or I used to anyway. I’ve ridden down mountains on beaches and through state parks. Riding down the Flume Trail in Lake Tahoe was a favorite. I’m not an overly aggressive rider, but I hold my own.

As my daughter was growing up, we went on long bike rides on the Linear Trail in Cheshire, Connecticut. She was perched behind me, tucked safely in her bicycle seat. I rode the bike carefully when she was a passenger, and we did not do anything crazy because I didn’t want to fall or put her in harm’s way. I had a duty to take care of her and bring her back home safely to her mother.

As an investor, I invest aggressively in my account. I take risks. If I suffer a loss, I analyze the trade, lick my wounds, and move on to the next investment. I don’t spend too much time worrying about the loss. Nor do I get upset if I sell too early. Over the past thirty years, I purchased many stocks late and sold them way too early. I don’t spend too much time pondering the woulda, coulda, shoulda.  

As a fiduciary, I take risk management seriously because it’s not my money. I ache when I sell an investment for a loss for a client. It hurts to realize losses for others. Like riding my bike with my daughter, my goal as an asset manager is to deliver a client to their desired destination. It’s my job to listen to their hopes, dreams, and fears and invest accordingly. I must act on their wishes – to a degree. If a client wants to invest in something counter to their goals or plan, I might say no, particularly if it may harm them financially.

We utilize financial planning to help us manage money for our clients. A financial plan determines the best path to pursue; it’s a financial trail map. How aggressively do we invest? Do we take on additional risk, or less? How much income do they need? The plan can answer our questions. During the COVID correction last March, we stress-tested accounts in real-time. Our financial plans gave us the courage to remain invested and our clients the peace of mind to ride out the storm.  Our risk management system worked.

An African proverb says, “If you want to go fast, go alone. If you want to go far, go together.” My goal is to embark on a long-term journey with our clients. We want to make sure they don’t run out of money in retirement – a worthy goal. To ensure we meet this goal, we prudently utilize a basket of low-cost, globally diversified funds. The portfolios are built for distance, not for speed – designed for the long haul. Our moderate model ETF portfolio returned 13.25% last year, an excellent return when judged on its own merits. However, we could have gone faster if we invested in the NASDAQ 100, QQQ. It was up 49%. But we could have invested in the ProShares Ultra Bloomberg Crude Oil (UCO) ETF, which fell 83%. Hindsight is 20/20. Risk and reward.

Calculated risks are essential to life and investing. Knowing your comfort zone as an investor is paramount. If you’re comfortable and confident with your holdings, you’re more likely to remain invested for the long-term, where you have an opportunity to create generational wealth.

Happy investing, and enjoy the journey.

Get a bicycle. You will certainly not regret it, if you live. ~ Mark Twain

February 16, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.