To Not Invest Is to Go Broke Safely
Bertrand Russell said to conquer fear is the beginning of wisdom. In order to trust you with his or her money, a client must, if not conquer, at least control his fear.
Watch this video episode or read the transcript below to learn how to convince clients that time to invest is now.
Explain to your clients that there are five ways to reduce risk.
The first two are the most popular and they’re the worst thing you can do.
Number one, if you totally want to reduce risk, take no risk. Bury the money. Then you’ve got no risk at all.
The second way is to settle for low returns. You can buy CD’s. Get lower returns, but relative safety.
Now, the third way is the best way, but it’s the least popular. That’s to let time work for you. If you haven’t got the time, the last two ways will be right for you.
Number four, diversify. If you properly diversify, you can’t lose it all.
Number five, dollar cost average, because if you dollar cost average, you can’t buy at the top.
I don’t believe you can change a person’s tolerance for risk.
We all have a capacity for risk. When we lean too far out of the boat, we don’t sleep at night.
You are far better off changing a perception of the risk at hand. Make investing appear less risky than the other person may perceive. That is best accomplished by stretching out the person’s time horizon. Times flattens out volatility. Just look at a long range chart of any index or average.
Stretching out a person’s time horizon also helps you deal with the misconception that this time it’s different. People discount old events and focus on recent events. Just try to remember what you had for lunch each day for the past week. Yesterday’s lunch is far more memorable than last week’s. So, too, is 9/11 a much more vivid and real memory than JFK’s assassination. So, too, is JFK’s assassination a much more vivid and real memory than Pearl Harbor.
More recent events always appear more risky than older events.
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