About 20 years ago, as I was just beginning my career as a financial advisor, I thought about and discussed investment risk with clients like it was something out of Goldilocks and the Three Bears.
I’m sure you remember the story of Goldilocks innocently breaking and entering into the home of a family of bears. After tasting their porridge and then testing the comfort of each of their beds, she settled on the “least extreme” choice.
Not too hot; not too cold — just right.
Not surprisingly, the Goldilocks Principle exists to describe our preference to avoid extremes and choose something that falls comfortably between them.
And this describes how I thought about and presented investment risk to my clients. You certainly didn’t want too much risk. But just as importantly, you didn’t want too little.