How Much “Risk” Must you Take?

How Much "Risk"​ Must you Take?


“The Dose Makes the Poison.”

Paracelsus

What is the Minimum Effective Load When Training?

In strength training, the idea of “minimum effective load” is doing the smallest amount of work to generate the stimulus needed to get the desired response. Anything beyond that could generate greater fatigue than necessary and be detrimental to your long-term progress in the gym. This often leads to a feeling that you could have done more or “worked harder” than you did. 

I know from personal experience this concept has been difficult for me to adopt. I used to think more was always better, but have since realized sometimes more is just more. There came a point where I had to decide between training just to get tired and sweaty and training to make progress towards a goal.     

What is the Minimum Effective Risk When Investing?

In investing, especially for retirement, you want to adopt a strategy that provides you the highest likelihood of achieving a desired future state. For many, this desired future state is maintaining a certain level of wealth that allows for an independent and dignified retirement. When creating your investment strategy, you know you must assume a certain level of risk.

This is where you could determine what is the “minimum effective risk” you must take in your portfolio. Meaning you only want to expose your portfolio to as much risk as necessary to meet your short-term and long-term goals. Taking risks above the required amount, provide you with diminishing marginal benefits on the upside but could be disastrous on the downside.

This is where you must decide if you want to make incremental progress over time or just end up being repeatedly tired and sweaty, with little to show for it.

“Risk is what is left over when you think you thought of everything.”

Carl Richards

Risk presents itself in many forms and changes with time horizons. Something that provides you desired certainty in the short-term is likely to provide undesired certainty in the long-run. Finding the balance here is an art rather than a science.

Often, we have competing desires of wanting to make the most of today and planning for tomorrow. Guidance with this issue is often helpful, but the decision is ultimately yours.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA
Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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