August 16, 2021
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6 Min Read
How much risk do you need to take?
For summer vacation this year I am travelling with my wife, Sharon and our dog, a Norwich Terrier named Elhe, in our RV to Colorado and New Mexico. It has been a great trip so far with beautiful scenery and wildlife sightings of bear, antelope, deer, elk, and lots of prairie dogs. Driving our RV on some of the mountain roads has been challenging with steep climbs and descents and lots of hairpin turns.
As I planned this trip, I looked at the possible routes we could drive between stops. In New Mexico, there were two routes appropriate for an RV driving to Santa Fe from the high mountain valley we were staying at in Angel Fire, NM. One of those choices out of the Moreno Valley was the way we drove in through Cimmaron Canyon, a winding road but not too bad a drive over to Interstate 25. The second route involved a short, steep, and winding mountain pass followed by a drive down another canyon before reaching a major highway. The drive over the pass would be more difficult but was shorter.
When we left Angel Fire last week, we decided to take the easier route for our drive. Although a little longer, the ride was less stressful, avoided any potential problems associated with a mountain pass, and we still arrived in Santa Fe by the middle of the afternoon. Overall, it was a nice day.
So how does driving an RV through the mountains relate to investing and financial planning?
When planning my route out of Angel Fire last week, it made sense for me to follow the route with less risk and a higher probability of success, even if it took a little longer.
The same concept is true with investing and financial planning. Many investors have goals for their investments, like a comfortable retirement, buying a new or second home, paying for college expenses, to name just a few. There are many paths that can lead to those goals, but some involve more risk (sometimes much more risk) than others. With added risk, unexpected outcomes can happen more easily.
While there is risk associated with investing in the stock market, a broad and diversified portfolio can greatly reduce unnecessary risk. As part of a valid financial plan that shows the path to those financial goals, the probability of achieving those goals becomes much greater.
It is important to have a valid plan and avoid unnecessary risk.
This is good advice for driving an RV and it is great advice to help reach your financial goals.