The Conscientious VS Conservative Investor
The Conscientious VS Conservative Investor:
There is a difference between being conscientious and conservative when it comes to personal finance. Sometimes people tend to conflate the two terms, but there is a large difference between them. Every investor needs to be conscientious at all times, but not every investor should be "conservative".
The definition of conservative is “purposely low for the sake of caution” as it relates to finance. The definition of conscientious is “wishing to do what is right, especially to do one's work or duty well and thoroughly.” What is right for one person may in fact be to take on very high levels of risk because of the circumstances. The opposite may be true for someone else. That is being conscientious regarding your own situation.
In the financial industry, there is usually a bias towards conservatism because of the human psychology inherent with investing. People tend to experience more pain by losses than they do joy of an equivalent gain. This human nature tends to lead both financial advisors and investors themselves to allocate portfolios more “conservative” than they should be because of the fear of loss and regret, and maybe even embarrassment or fear of losing of a client. However, investing to be "too safe" just because it is easier can also severely hurt your future returns, just as being too risky can on the opposite side of the spectrum.
As an example, there are some investors who are 80 years old who should be a 10/10 on the risk scale in certain accounts, while a 25 year old may need to be invested in an extremely conservative manner due to an array of reasons. Time horizon, goals, and personal behavior all come into play when investing in one’s financial future. Reasons are different for everyone, and it is important to remember that sometimes the most conscientious allocation is not necessarily conservative at all. Everyone has their own needs and rationale, and it is important to understand yours before investing, and be purposeful, not just typical.
Please discuss your finances with a financial professional before making any decisions. #investingtips #financialadvice #personalfinance
-Your friends at Red Oak Financial Group