Specificity in Investing

Specificity in Investing

The art of good decision making is looking forward to and celebrating the tradeoffs, not pretending they don’t exist

Seth Godin

Specificity in Training

When training you tend to have a specific goal in mind, meaning if your focus is on getting stronger, you should prioritize your exercise activities on specific movements with a set training volume and intensity to drive the stimulus required to get the desired results. The more specialized the training, the more you can optimize the results.

Any training you do that does not have the specific intent to improve the desired outcome will lead to sub-optimal results.

For example, if someone wants to perform their best at a powerlifting meet they will likely have to train differently than someone who wants to run a good time in a 5k race. This does not mean the person who does powerlifting can’t do distance running, or vice versa but compromises will need to be made to their relative performance in either event.

If someone wants to maximize their potential in one arena it will be at the detriment of the other. This means as your goals change, you will likely have to modify your training accordingly to produce the greatest results.

Specificity in Investing

Similar parallels can be drawn to investing. The characteristics of different types of investments lend to their effectiveness based on the objectives of the investment strategy someone put in place. The three characteristics I will discuss today are growth, income, and stability.

Growth: Becomes more valuable over time. (Buy at X, sell at Y)

Investments that offer the greatest potential of growth, will likely not provide much stability or income.

Income: Receive payments of dividends or interest.

Investments that produce a large amount of income may not offer the greatest stability or potential for growth.

Stability: Preservation of your initial investment.

Investments that offer a high level of stability probably do so at the cost of the possibility of growth or income generation.

A diversified portfolio will have a blend of assets with differing characteristics

You will likely have portions of your portfolio focused on either growth, income, or stability. How much you allocate to each of these assets will determine how your overall portfolio will perform. Therefore, your investment strategy should be based on what is important to you and created to give you the greatest chance of reaching your desire outcome.

Investing With a Purpose

Just like with training there is a give and take between optimizing for growth, income, and stability. It is not possible for a single investment to have all of the good qualities of each and none of the bad. As your priorities shift from one area to another you may likely have to reconsider how you are invested and find a new balance to align your investments with what you want to do for yourself.

Often this means making compromises in your overall returns or your overall comfort level. Having a portfolio allocation you can stick with both in good times and in bad is a critical factor in your long-term success as an investor.

In training and investing, we are dealing with limited resources and have to find balance and make compromises as a means of achieving our set objective. As our objectives change we will likely have to make adjustments to find a new optimum for our given circumstances. Being able to continually iterate and make the most of what you have is a key component to success in any endeavor.

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.

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