S. is trying to make up her mind. She has a high-risk, illiquid investment that worries her. There is a small window of opportunity for her to sell this investment — at a profit, mind you.
But that will mean giving up a potentially large upside down the road. The upside is by no means guaranteed though — it is a high risk investment.
And she can’t decide what to do.
S. is a successful marketing professional and has done well for herself financially. And she comes from generational wealth. So you may be forgiven for assuming her portfolio is fizzy and crackling.
But not so.
S. is extremely conservative financially. A naturally risk-averse disposition coupled with a bruising investment experience has naturally led to a “low on stocks, high on bonds” portfolio. S. has a solid financial advisor who has built her a reasonable, conservative portfolio.
While I am usually suspicious of illiquid, risky investments, the investment in question is a good one. It fits nicely into her conservative portfolio and gives it a bit of zing. And it is in the Goldilocks zone — not too large, not too small as a percentage of portfolio.
From a strictly rational perspective, there is no reason for her to sell this investment. But emotionally, S. is not happy. Her advisor has rightly suggested that if she is losing sleep over the investment she should sell it.
I usually offer the same advice to my clients: no investment return is worth losing sleep over.
But no two situations are the same. So here are my two cents for S.
The first is to look at her investments as a portfolio. Sometimes one starts to focus too closely on individual investments — at their risks and returns. A well-constructed portfolio has parts that are intended to perform different roles.
You don’t want a cricket team with eleven batsmen. You do need some bowlers even though they may not score when batting. Similarly, some parts of the portfolio are supposed to take risk and potentially provide out-sized returns; and other parts have to hold value even at the risk of very low returns.
The second cent: don’t be a back-seat driver. If you hire a driver, give clear instructions and then let the guys do his job. I think S.’ advisor is doing a good job. And she may be doing both him and herself a disservice by second-guessing his decisions. If you don’t like the way your driver drives, get a new driver.
The point of having a financial advisor is that you should not have to worry about your investments. Otherwise, you are paying not just financially but psychologically as well.
For what it is worth, my advice to S. was to hold the investment and trust her advisor.
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