Why Risk Management Isn’t Like Silly Car Shopping

This article by RiXtrema President appeared on ThinkAdvisor.com

I like to use car shopping as an analogy to the investing process. Let’s imagine what it would it be like to buy a car with a view only to targeting our tolerance for risk and forgetting why we are tolerating risk.

Car Shopper:  “I am considering these two cars, can you explain to me the difference between them?

Car Salesperson:  “Sure thing. The one on the left will give you a whiplash when hit from behind and the airbag will break your nose. The one on the right will actually break a number of bones, including a collar bone and will possibly give you back pain for a good long while. Now, which risks are you ready to tolerate?

Car Shopper:  “I’ll take the broken nose please…”

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