Published by Pamela Corrigan
This morning, I saw the title “Safe Investment” on the cover of one of my husband’s magazines. Not recognizing the magazine, I looked closer, only to find it was PRI, aka Performance Racing Industry. The specific article focused on how racing helmets have evolved and are continuing to evolve to dramatically increase a driver’s safety.
As a hobby race car driver, I can personally attest that a helmet is a safe investment! So much so that many types of racing not only require a helmet, but also require the helmet to meet the most current safety standards available. Of course, I had originally assumed the magazine was related to wealth management, so this started my mind racing. (pun intended)
Investing is just like racing. The longer the race goes without a significant crash, the more comfortable we get going faster, pushing harder, and wanting more out of our cars, ourselves, and our team. Because of this, it has historically taken a tragic event and regulators of the sport to require the use of advanced safety equipment. From personal experience, I know the hotter the day gets and the longer a racing event goes without something bad happening, the more comfortable and relaxed I become. Honestly, if not required, I might be tempted to forgo the added discomfort of wearing a neck restraint or gloves. The importance of being proactive about taking safety measures seems to diminish the farther we get from a disaster.
The same can be said for investors in the stock market. The longer major indexes climb without a significant correction, the more careless most investors become. Just as with racing, our thinking and habits shift away from being proactive and safe. For example, we start thinking, “It’s not like I am investing in a bunch of startup companies, but rather in the same companies the S&P measures, and look how that is doing.“ Each day, quarter, and year nothing “bad” happens and the markets continue to go up, many investors lose sight of what can quickly happen. They become “comfortable” with their new familiar until…
Unlike professional race car drivers, most of us who race as a hobby and most people I know who invest in the stock markets cannot afford to have a major crash. I don’t have a spare car to drive if mine gets totaled. Many investors don’t have time to wait for the market to recover. My answer to both the racing and stock market dilemma is the same. Just as I don’t drive beyond my abilities or use ineffective safety gear, you shouldn’t invest beyond your risk tolerance. Implement safety measures into a diversified portfolio to increase your success in achieving your investment goals.
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