By Nick Pirnack
Learn more about Nick on NerdWallet’s Ask an Advisor
The majority of people in sales careers that are starting their own businesses have a large risk appetite. They take on risk quicker and more liberally than the rest of the population. Normally when you invest the risk conversation goes something like this.
Advisor: “Hey Bob, thanks for coming in today, which one of these graphs looks best to you?”
Bob: “Green obviously, who would choose to make less money!?!”
Advisor: “Sounds good Bob, we’re done here.”
I understand this is simplified but in reality it is pretty close to how advisors choose client investments. While it is certainly possible that this process can land a client in the right portfolio, the HUGE exception to this is if you are in sales or are an entrepreneur, and because you are reading this blog I am assuming this to be true.
Your income moves with the market and looks something like this:
Generally income ebbs and flows with the market. When things slow down for you it is around the time everyone else is slowing down. This creates a double hit on your money. You are losing money in the markets the exact time your income is diving. You are losing money right when you need it to support your descending income.
What ends up happening is bad. After this ride the result is buying high and selling low through the entire cycle. You are buying in when the market is good and taking out when the market turns sour.
This is your final result from being set up incorrectly from the beginning:
Although counterintuitive, it is best for you to be in a more conservative portfolio for two reasons.
1) Support – Through a down market you may need some money here and there. This is to cushion you through the down turns so you do not have to use your investment accounts or borrow money.
2) Opportunities – Major business and market opportunities generally lie at market valleys. Having enough cash on the side and being conservatively invested will allow you to take advantage of opportunities as they arise. This is the time to pull the trigger and take the big risks. This is the time to double down and use your money to build.
Flip the script and get conservative. It may be hard at first to limit your money’s growth, but it will pay off over time. This approach will help you get rich through losing less in the downturns and having enough money in a downturn to be able to pull the trigger on a few opportunities. Around 1 out of 5 years is a down market, rest assured there will be plenty more opportunities.